The Australian Dollar (AUD) has extended its losses for the fourth consecutive day, slipping to near 0.6415, its lowest level in almost two months. Despite stronger-than-expected preliminary Australian PMI data for August, the currency remains under pressure, largely driven by broader market sentiment and external factors.
Technical Outlook: Bearish Momentum Persists
The AUD/USD pair remains stuck in a range between 0.6400 and 0.6600, with little direction for the time being. The immediate resistance stands at 0.6625 (July 24 high), followed by 0.6687 (November 2024 peak). The psychological 0.7000 mark remains a long-term target for bulls, but current momentum remains sluggish.
On the downside, the August low of 0.6414 and 200-day SMA at 0.6384 are key support levels. A break below these levels could open the door for further downside towards 0.6372, the June floor. With the RSI dropping to 38 and the ADX at 19, the pair is showing increasing bearish pressure. Technical indicators point to further downward potential, and a strong catalyst could be needed to break the 0.6400-0.6600 range.
Fundamental Drivers: Economic Data, Geopolitical Tensions, and Central Bank Divergence
Australia’s Economic Performance
Australia’s economic data shows signs of cooling inflation, but growth remains resilient. The Q2 CPI came in at 2.1% YoY, slightly easing from 2.3% in Q1. However, this cooling inflation is gradual rather than sharp, leading to mixed expectations on the next steps for the Reserve Bank of Australia (RBA).
Labor market conditions are firm, with unemployment dipping to 4.2% and jobs rising by 24.5K in July. Retail sales also grew by 1.2% in June, supported by stronger manufacturing and service sector activity in the latest PMI reports.
Despite these positive data points, the RBA’s cautious approach continues to weigh on the AUD. The RBA reduced its Official Cash Rate to 3.60% earlier this month and lowered its 2025 growth forecast to 1.7%. The central bank’s stance remains dovish, and market expectations point to another 25 basis point rate cut by November.
China’s Economic Outlook
China, Australia’s largest trading partner, has presented mixed economic signals. While Q2 GDP grew by 5.2% YoY and industrial production rose 7%, retail sales missed expectations. PMI figures also show a slowdown, with manufacturing PMI dropping to 49.3, indicating contraction. This weak Chinese data adds to the bearish pressure on the AUD/USD pair, given the high dependence of Australia’s economy on trade with China.
Geopolitical and Fed Influence
Geopolitical risks, especially the ongoing tensions from the Russia-Ukraine conflict, continue to overshadow market sentiment. While peace talks are underway, the US Dollar (USD) has strengthened due to reduced bets on aggressive Fed rate cuts.
Speaking of the US Federal Reserve (Fed), the CME FedWatch tool suggests an 82% probability of a 25 basis point rate cut in September. Jerome Powell’s speech at the Jackson Hole Symposium this week will be key for market direction. Any hawkish remarks or signals of economic resilience from Powell could further strengthen the USD, adding pressure on AUD/USD.
Technical Levels to Watch
Bullish Scenario:
For a bullish reversal, AUD/USD would need to break above 0.6600, supported by strong Chinese data or a shift towards hawkish RBA rhetoric. The key resistance lies at 0.6625, which, if surpassed, could pave the way for a move towards 0.6687 and possibly the psychological 0.7000 mark.
Bearish Scenario:
A continuation of the bearish trend would see AUD/USD breaking the 0.6414 support and potentially targeting the 200-day SMA at 0.6384. Further weakness could expose levels around 0.6372, and a decisive break below these levels could push the pair towards 0.6300.
Conclusion:
The AUD/USD pair remains caught in a range as a result of a combination of economic data, geopolitical tensions, and central bank divergences. With Fed expectations and China’s economic outlook playing a pivotal role in driving market sentiment, the upcoming speeches from Fed Chair Jerome Powell and the Jackson Hole Symposium will be key to shaping USD/AUD trends in the near term.
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