Technical Outlook:
The Australian Dollar (AUD) continues its downtrend against the US Dollar (USD), dipping for the third consecutive day, bringing the pair closer to the monthly lows near 0.6420. Despite a slight pullback in the USD, AUD/USD remains subdued. The pair’s momentum indicators are tilted to the negative, with the Relative Strength Index (RSI) dropping to 39 and the Average Directional Index (ADX) signaling a weak market.
Key Levels to Watch:
- Resistance: Initial resistance is at 0.6625 (July 24 highs), followed by 0.6687 (November 2024 peak). The psychological 0.7000 level remains a long-term target if bullish momentum returns.
- Support: Immediate support sits at 0.6418 (August low), with the 200-day SMA at 0.6385 and the June low at 0.6372 as key downside levels.
The AUD/USD pair currently appears trapped within a range between 0.6400 and 0.6600, with further catalysts required to break this range, such as stronger Chinese data, shifts in US Federal Reserve (Fed) policy, or fresh guidance from the Reserve Bank of Australia (RBA).
Fundamental Outlook:
Inflation: Australia’s inflation remains cooling but not dramatically. The Consumer Price Index (CPI) showed a 0.7% quarter-on-quarter (QoQ) increase and a 2.1% year-on-year (YoY) rise. However, the Monthly CPI indicator for June moderated to 1.9%, signaling a gradual decline rather than a sharp drop.
Economic Resilience: Despite easing inflation, the Australian economy shows signs of strength. The Purchasing Managers’ Index (PMI) data for July showed manufacturing growth above the neutral 50 threshold at 51.6, with services expanding to 53.8, and retail sales up by 1.2% in June. Additionally, trade added momentum, with the trade surplus growing to A$5.365 billion from A$1.604 billion in May.
Labor Market: The unemployment rate held steady at 4.2%, with 24.5K jobs added in July, indicating a robust labor market. However, concerns about global headwinds and subdued consumption remain, which may limit further economic expansion.
RBA Policy Stance: The RBA cut the Official Cash Rate (OCR) by 25 basis points to 3.60%, with its end-2026 rate forecast revised lower to 2.9%. Governor Michele Bullock emphasized a data-dependent approach, rejecting calls for larger cuts. The market is pricing in a further 25 basis point rate cut by November, which adds pressure on the AUD.
China’s Impact: China remains a key influence on Australia’s economy. While Q2 GDP grew by 5.2% YoY and industrial output rose by 7%, retail sales fell short of expectations. The People’s Bank of China (PBoC) held its Loan Prime Rates (LPRs) steady, but the mixed economic signals and ongoing deflationary pressures from China continue to weigh on the Aussie Dollar. The slowdown in Chinese manufacturing and the narrowing trade surplus signal weaker demand, especially for Australian exports.
Market Positioning: Bearish sentiment remains dominant, with speculators holding large net short positions against the AUD. As per Commodity Futures Trading Commission (CFTC) data, net short positions on the Aussie have increased to nearly 88K contracts, the largest since April 2024, indicating continued market pessimism.
Conclusion:
With the Australian Dollar facing multiple headwinds — from subdued inflation, weak trade data, and geopolitical uncertainties — AUD/USD’s downside risks remain intact. Traders will look for further confirmation from economic data and central bank guidance. Unless a strong catalyst emerges, the pair is likely to continue consolidating within its current range or test lower support levels.
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