As a commodity currency, the Australian dollar enjoyed strong support when supply disruptions and the start of the Ukraine war sent oil and other commodities to dizzying heights.
But significant price reversals due to weakening commodity demand have left it extremely vulnerable.
Australia and Qatar are the world's largest exporters of LNG, which sent the AUD 12% higher against the EUR as energy prices soared at the start of the conflict in February.
The technical outlook for crude oil has now turned bearish; WTI crude futures closed Wednesday below their 100-day moving average ($105.03) for the first time since December. nL4N2Y93KA
Australia's other major export is iron ore. Dalian futures traded to their lowest level since early January on Wednesday, falling as much as 26% from the June 6 high nL1N2Y9077.
In a client note Thursday, CBA's commodity analyst Vivek Dhar said, "We think a declining price profile across most mining and energy commodities is justified in light of a weakening demand outlook." He added that commodity markets are less optimistic about significant infrastructure investment in China than a couple of months ago.
AUD/USD is trending lower and the 2022 low at 0.6829 is in the market's sights. The 10-DMA, currently at 0.6960, has been acting like a trend-line that has repeatedly capped rallies.
A break below 0.6825 initially targets the 50% retracement of the pandemic low-high at 0.6758.
If key commodities continue to slide, the 61.8 Fibonacci retracement of that move at 0.6463 is a realistic target.
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