The Australian Dollar (AUD) weakened for the seventh consecutive session on Tuesday, driven by a steep decline in energy and metals prices. Australia’s heavy reliance on commodity exports makes the AUD particularly sensitive to fluctuations in these assets.
Joseph Capurso, head of international economics at the Commonwealth Bank of Australia, commented on the situation, stating, “The interest rate cuts by the People’s Bank of China (PBoC) and the outcomes of the Third Plenum are too modest to convince market participants that a significant acceleration in the Chinese economy is in prospect.” Given China’s status as a close trade partner, any changes in its economy could significantly impact Australian markets.
Despite this, the AUD could find support from robust employment data, indicating tight labor market conditions. This raises the possibility of an interest rate hike from the Reserve Bank of Australia (RBA). Investors are also looking forward to Australian manufacturing and services PMI figures this week to gauge the economy’s health.
On the other hand, the AUD/USD pair could limit its downside as the US Dollar (USD) faces challenges amid rising bets on a Federal Reserve (Fed) rate cut in September. Fed Chair Jerome Powell noted a growing optimism about inflation progress, while Fed Governor Christopher Waller stated that the time to lower the policy rate is drawing closer.
Daily Digest Market Movers: AUD Declines on Lower Commodity Prices
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The weak outlook for the Chinese economy has driven copper prices to their lowest in over three months and caused a decline in iron ore prices, further pressuring the AUD. Steel rebar futures also dropped below CNY 3,250 ($447) per tonne, hitting their lowest level in over seven years. China’s economy grew less than anticipated in the second quarter, with June seeing the steepest decline in home prices in nine years, highlighting the severity of the real estate crisis.
The PBoC has cut one- and five-year loan prime rates by ten basis points to 3.35% and 3.85%, respectively. These changes in the Chinese economy could impact Australian markets due to their close trade relationship.
China’s $715 billion hedge fund industry is bracing for increased pressure as new regulations take effect next month. These guidelines will require funds to meet higher asset thresholds and stricter rules for investments and marketing, leading some investment firms to seek additional capital.
Fed Chair Powell recently noted that the three US inflation readings from this year “add somewhat to confidence” that inflation is on track to meet the Fed’s target sustainably, suggesting a shift to interest rate cuts may be imminent.
Technical Analysis: AUD/USD Approaches Key Support Levels
The Australian Dollar is trading around 0.6650 on Tuesday, with the daily chart analysis showing the AUD/USD pair depreciating within a descending channel, signaling a bearish bias. The 14-day Relative Strength Index (RSI) is below the 50 level, indicating confidence in a bearish trend.
The AUD/USD pair might test the lower boundary of the descending channel around the 0.6630 level. A decline below this level could pressure the pair to navigate the throwback support around 0.6590.
Immediate resistance appears at the nine-day Exponential Moving Average (EMA) at 0.6693, followed by the psychological level of 0.6700. A breakthrough above this level could lead the AUD/USD pair to test the upper boundary of the descending channel around the 0.6760 level, followed by a six-month high of 0.6798.
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