AUD/USD Back in the Range as Chinese Recovery Improves Sentiment

Posted Sunday, October 1, 2023 by
Skerdian Meta • 2 min read

The Australian dollar has been on a downtrend as commodity dollars have been falling since July on a stronger USD, as well as China’s economy showing considerable weakness in different sectors. The price slipped below the 0.64 level, which had previously functioned as a support level and on Wednesday we saw a dip to 0.6330s, despite the 3 point jump in Australian consumer inflation CPI during August, which took the headline CPI YoY to 5.2%.

On the other hand, the US economy has been showing resilience, with the Durable Goods Orders increasing by 0.2%, exceeding the predicted -0.5% and recovering from the previous reading of -5.6%. Besides that, hawkish comments from Federal Reserve (FED) board members have added to the bullish USD market momentum, with Minneapolis FED President Neel Kashkari leaving room for more rate hikes in the future on Wednesday, as well as the possibility of rates remaining at their current levels if rate cuts are pushed out even further.

So, AUD/USD declined lower and in the process tested the low extreme area at 0.6333. But buyers leaned against the swing lows, finding support at that zone and pushed the price back up above 0.64 yesterday, as the USD retreated lower. But we still have the 20 Simple Moving Average (gray) on the daily chart, which has been acting as resistance, rejecting the price twice this month.

The Chinese economy is showing signs of reviving, which might be helping risk assets such as commodity dollars. The economy and financial markets are waking up after a severe slump, but these developments may not be enough to sustain the Chinese recovery just yet and further attempts might be required to fight the deteriorating economy. Credit demand in the economy is improving, deflationary pressures are receding, and the yuan is gaining.

Earlier this week Nomura increased its GDP projection for China to 4.8%. The ANZ bank expects AUD/USD to strengthen further on evidence of economic stability in China. While waiting for further information, the bank remains bullish on purchasing possibilities in this tactical play. For now, this pair has returned within the range and looks to be heading for 0.65.

AUD/USD Live Chart

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