AUD Hits 10-Month Low, Rebound Possible on RBA Rates and Chinese Stimulus

The Australian dollar recently hit a 10-month low against the US dollar due to concerns about China's economic growth and higher US yields. Asset managers held a record net short position of 94,107 contracts on the Australian dollar.

However, there is optimism that the Aussie dollar will rebound in the coming weeks. This outlook is based on China's efforts to stimulate its economy and the possibility of the Reserve Bank of Australia (RBA) raising interest rates again by December.

Some market experts believe that the potential for a final rate hike by the RBA is currently underestimated by markets. If China's growth target of 5% appears difficult to achieve, Chinese officials may implement direct stimulus measures, which could boost risk sentiment and benefit the Australian dollar.

However, the Australian dollar could face renewed pressure if data on September 14 shows that the nation's unemployment rate has risen more than expected. A weakening labor market may lead investors to reconsider their expectations of another RBA rate increase.

The Reserve Bank of Australia (RBA) recently decided to keep the Official Cash Rate (OCR) at 4.10%. RBA Governor Philip Lowe mentioned that this decision allows the central bank more time to assess the impact of the current rate hike and economic outlook. He emphasized the importance of wages and profits remaining consistent with inflation returning to target by late 2025.

Australia's Gross Domestic Product (GDP) data for the second quarter of 2023 exceeded expectations, showing a 0.4% increase, and annual growth was at 2.1%. However, concerns about sluggish demand and deflation in China are affecting Australia's trade surplus and exports, particularly in key commodities. Meanwhile, household consumption remains weak due to high interest rates and the rising cost of living.

China's economic slowdown is a significant concern for the Australian economy, as China is its largest trading partner. Weakness in the Chinese property market and manufacturing sector has had spillover effects on Australia.

In the upcoming days, the focus will be on US inflation, with the Consumer Inflation Expectations survey expected to show a slight softening in August. A more significant softening would challenge market expectations of further Federal Reserve rate hikes. The highly anticipated US Consumer Price Index (CPI) report, set to be released on Wednesday. Economists anticipate that the US annual inflation rate will rise from 3.2% to 3.6% in August.

The US dollar has seen a decline on Friday, but it is still on track for its eighth consecutive week of gains. Market expectations suggest that the Fed may maintain its interest rate at the September meeting, but there is a 93% chance of a rate hold, and a 43.5% chance of a rate hike at the November meeting, according to the CME FedWatch Tool.

Investors will pay close attention to this week's data releases, such as the producer price index and retail sales, to evaluate the direction of future Federal Reserve policies. Moreover, they will be attentive to economic data from China, including indicators like vehicle sales and new Yuan loans. Within Australia, employment figures will be unveiled on Thursday, while China's Industrial Production and Retail Sales data are anticipated on Friday, presenting trading prospects within the AUD/USD pair.

In summary, while a positive macroeconomic backdrop could provide support for the Australian dollar, the divergence in economic and monetary policies still favors the US dollar. The key drivers this week will be the US inflation figures, which could either strengthen or offset the impact of rising US consumer prices. Additionally, any potential stimulus measures from China could play a role in influencing the currency markets. As a result, this could lead to fluctuations in the Australian dollar's value, with the possibility of slight upward corrections within a specific range. However, the short-term trend during this period is expected to remain weaker than the US dollar.

Data for Technical Analysis (1H) CFD AUD/USD

Resistance : 0.6418, 0.6422, 0.6428

Support : 0.6406, 0.6402, 0.6396

1H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 0.6396 - 0.6406 is touched, but the support at 0.6406 cannot be broken, the TP may be set around 0.6421 and the SL around 0.6391, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6418 - 0.6423, TP may be set around 0.6430 and SL around 0.6401, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6418 - 0.6423 is touched, but the resistance at 0.6418 cannot be broken, the TP may be set around 0.6405 and the SL around 0.6428, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6396 - 0.6406, TP may be set around 0.6390 and SL around 0.6423, or up to the risk appetite.       

Pivot Points Sep 11, 2023 03:55AM GMT

Sources: Investing , Yahoo Finance