- AUD/USD flirted with four-week lows near 0.6630.
- Poor growth prospects in China and weak commodities hurt AUD.
- Next on the downside is the 200-day SMA.
AUD/USD saw its decline pick up at an unusually strong pace at the beginning of the week as investors assessed the lack of auspicious news from China in combination with further weakness in commodities and the interest rate cut by the PBoC.
That said, spot retreated for the sixth consecutive session on Monday, breaking below the 0.6700 support with decent conviction and opening the door to a deeper pullback in the short-term horizon.
Furthermore, the PBoC’s unexpected decision to cut both short- and long-term interest rates also pushed the Chinese yuan lower, impacting the Aussie dollar due to the country’s economic dependence on the Chinese market. Further selling pressure came in as the Australian current is also considered a liquid proxy for the yuan.
In addition, the weak outlook for the Chinese economy, in the absence of significant stimulus measures, has led to a decline in copper and iron prices, further weighing on AUD.
Regarding monetary policy, the Reserve Bank of Australia (RBA) appears likely to be the last G10 central bank to start lowering interest rates. In its latest meeting, the RBA maintained a hawkish stance, keeping the official cash rate at 4.35% and signalling flexibility for future decisions. The meeting minutes revealed that officials considered another rate hike to curb inflation but decided against it, partly due to concerns about a potential sharp slowdown in the labour market.
The RBA is in no rush to ease policy, expecting that it will take time for inflation to consistently fall within the 2-3% target range.
Potential Fed easing in the medium term, contrasted with the RBA’s likely prolonged restrictive stance, could support AUD/USD in the coming months. However, concerns about slow momentum in the Chinese economy might hinder a sustained recovery of the Australian currency as China continues to face post-pandemic challenges.
On the data front, flash Manufacturing and Services PMIs will be the salient data releases Down Under this week.
AUD/USD daily chart
AUD/USD short-term technical outlook
Further losses in AUD/USD should find initial support at the July low of 0.6631 ahead of the 100-day SMA at 0.6605. If the pair breaks through this level, it might go for the June low of 0.6574 (June 10), which is supported by the key 200-day SMA (0.6581). From here, the May low of 0.6465 is followed by the 2024 bottom of 0.6362 (April 19).
If buyers regain their impetus, the immediate target is the July high of 0.6798 (July 8), seconded by the December 2023 top of 0.6871, the July 2023 peak of 0.6894 (July 14), and the 0.7000 yardstick.
Overall, the uptrend should continue as long as the AUD/USD is trading above the 200-day SMA.
The 4-hour chart indicates a sharp acceleration of the downward bias. Against this, the immediate support is 0.6631 ahead of 0.6619. On the upswing, the first barrier is the 200-SMA of 0.6679, which is followed by 0.6754 and finally 0.6798. The RSI fell to around 22.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
AUD/USD traders seem non-committed around 0.6500 amid mixed cues
AUD/USD extends its consolidative price move just above 0.6500 on Friday. The RBA's hawkish and upbeat market mood supports the Aussie, though mixed Australian PMI prints fail to inspire bulls. Moreover, bets for a slower Fed rate-cut path continue to fuel the post-US election USD rally and cap the currency pair.
USD/JPY slides to 154.00 as higher Japanese CPI fuels BoJ rate-hike bets
USD/JPY languishes near 154.00 following the release of a slightly higher-than-expected Japan CPI print, which keeps the door open for more rate hikes by the BoJ. That said, the risk-on mood, along with elevated US bond yields, could act as a headwind for the lower-yielding JPY and limit losses for the pair amid a bullish USD, bolstered by expectations for a less dovish Fed and concerns that Trump's policies could reignite inflation.
Gold price advances to near two-week top on geopolitical risks
Gold price touched nearly a two-week high during the Asian session as the worsening Russia-Ukraine conflict benefited traditional safe-haven assets. The weekly uptrend seems unaffected by bets for less aggressive Fed policy easing, sustained USD buying and the prevalent risk-on environment
Ethereum Price Forecast: ETH open interest surge to all-time high after recent price rally
Ethereum (ETH) is trading near $3,350, experiencing an 10% increase on Thursday. This price surge is attributed to strong bullish sentiment among derivatives traders, driving its open interest above $20 billion for the first time.
A new horizon: The economic outlook in a new leadership and policy era
The economic aftershocks of the COVID pandemic, which have dominated the economic landscape over the past few years, are steadily dissipating. These pandemic-induced economic effects are set to be largely supplanted by economic policy changes that are on the horizon in the United States.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.