Australian Dollar trades higher after China announces economic support package

• Australian Dollar rises against the US Dollar after China's top leaders pledge support for the economy.
• Positive sentiment and strong earnings from leading US companies boost sentiment supporting commodity currencies. 
• Concerns regarding the impact of interest rates on the Australian housing market as well as China’s lackluster growth cap AUD's prospects.  

The Australian Dollar (AUD) reverses and makes gains against the US Dollar (USD) on Tuesday, after China pledges a package of support for its sputtering economy, including help for the struggling property sector. The Aussie is further helped by positive market sentiment after strong Q2 earnings from GM, GE and 3M. The market's risk-on tone supports commodity currencies such as the AUD more than safe-havens like the Buck.

The AUD/USD pair trades in the 0.67s during the US session.  

Australian Dollar news and market movers 

• The Australian Dollar rises after the country's top trading partner China pledges more support for its economy, on Monday, including specific help for the precarious property sector, according to Reuters. Chinese growth figures have been underwhelming since the country exited the Covid-19 pandemic and reopened for business.
• The Aussie is further supported by positive market sentiment, fostering a risk-on mood that is positive for commodity currencies. 
• Better-than-expected Q2 earnings results for General Motors, 3M and General Electric on Tuesday were factors in the positive market sentiment. 
• If US earnings continue to suprise to the upside, however, investors may expect the Federal Reserve (Fed) to keep interest rates higher for longer, providing support for USD and counter-balancing the upside enjoyed by AUD/USD. 
• Quarterly inflation figures for Australia, out on Wednesday, July 26, are likely to impact the Australian Dollar as traders attempt to model the future course of interest rates. Higher-than-forecast inflation is likely to lead the RBA to keep interest rates higher for longer and boost the AUD, since higher rates attract greater capital inflows. The opposite is true if inflation is lower-than-forecast. 
• The Consumer Price Index (CPI) for Australia in the second quarter is estimated to show a 6.2% rise YoY compared to the 7.0% in Q1. On a QoQ basis, it is forecast to show a 1.0% rise versus the 1.4% increase in Q1. 
• The RBA’s preferred gauge of inflation, the RBA Trimmed Mean CPI, measured quarterly, is also out on Wednesday, at 01:30 GMT. The data is forecast to show a 6.0% rise in Q2 YoY versus the 6.6% of Q1.QoQ it is estimated to show a 1.1% rise, which is below the 1.2% rise in Q1. CPI could be a key driver for the Aussie in the short term. If CPI is lower than expected, it will weigh on AUD and if higher, it will support AUD. 
• Strong Australian labor market data may influence the inflation figures resulting in higher-than-anticipated results. If that is the case, then the AUD may gain after the release of the CPI data. 
• The Aussie has weakened on skepticism over China, its largest trading partner’s growth, after the country’s lackluster Q2 GDP readings. 
• The Federal Reserve’s interest rate decision at 18:00 GMT on Wednesday could also impact the AUD/USD pair by way of influencing the US Dollar. 
• The Fed is already expected to raise interest rates by 0.25%, however, the wording of its accompanying statement may impact the US Dollar. 
• A more hawkish commentary will come as a surprise as the market is not pricing in further rate hikes from the Fed. As such it would strengthen the US Dollar and weigh on the AUD/USD pair. 
• The opposite is true if the Fed indicates it may have reached peak rate or even talks about possibly bringing rates down in 2024. 
• There exists a high risk that the RBA will have to cut rates from their current 4.1% level in 2024 because the Australian house market is dominated by variable-rate mortgages so it is more sensitive to changes in interest rates, and homeowners have recently been adversely affected by higher mortgage interest repayments, according to Bloomberg Intelligence, as quoted by Financial Review. 
• In comparison, the RBA’s Cash Rate is 4.1%, which is below the Fed’s 5.25% (likely to be 5.50% after Wednesday), thus overall favoring capital flows to the Greenback versus the Aussie.   

Australian Dollar Technical Analysis: Underpinned by confluence of support 

AUD/USD is in a sideways trend on both the long and medium-term charts. The February 2023 high at 0.7158 is a key hurdle on the weekly chart, which if vaulted, will alter the outlook to one that is more bullishly biased. 

Likewise, the 0.6458 low established in June is a key level for bears, which if breached decisively, would give the chart a more bearish overtone. 

Australian Dollar vs US Dollar: Weekly Chart

A confluence of support made up of all the major daily simple moving averages (50, 100 and 200) exists in the upper 0.66s and early 0.67s. This is expected to provide a rigid cordon of support, preventing losses.

The exchange rate has already begun reversing after touching down on the 200-day Simple Moving Average (SMA) on Monday.  

Australian Dollar vs US Dollar: Daily Chart

There is potential for a recovery from the current level, given the underpinning support from the MAs. A strong bullish close on Tuesday might provide some evidence of a turnaround in the form of a candlestick reversal pattern.  So far, however, it is still too early say. 

Only a decisive break below the 50 and 100-day Simple Moving Averages (SMA) would confirm a continuation of the recent bear move lower to a speculative target at the June and July lows in the mid-0.64s. 

A decisive break lower could consist in a long red daily candlestick, which pierces cleanly below the support levels identified and then closes near to the low of the day, or three red down days in a row that break below the support confluence, with the final day closing near its low and a decent distance below the lowest MA.