Australian Dollar Eyes Retail Sales as Iron Ore Rises, US Dollar Falls

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Australian Dollar, AUD/USD, China, Trade Balance, Technical Outlook- TALKING POINTS

  • Asia-Pacific market sentiment lags despite rosy economic data out of China
  • China’s city of Yiwu sees partial lockdown after Covid cases identified
  • AUD/USD struggles to maintain itself above the 20-day Simple Moving Average

Monday’s Asia-Pacific Outlook

A better-than-expected Chinese trade surplus, driven by strong export growth, for July may provide some fuel for markets to climb higher in today’s Asia-Pacific session. China posted a $101.26 billion surplus for July, beating the $90 billion consensus forecast. An 18% rise in exports—seen as a proxy for global economic demand—helped drive China’s surplus to a record figure. However, imports rose at a 2.3% year-over-year pace, disappointing the 3.7% y/y increase analysts expected, signaling that China’s domestic consumption remains weak.

The Australian Dollar is trading slightly lower versus the US Dollar this morning despite the rosy economic data. AUD/USD fell over 1% last week as the US Dollar climbed into the weekend after a red-hot US non-farm payrolls report that showed over half a million jobs added in July, dragging the unemployment rate down to 3.5% from 3.6%. The still strong labor market weakened the market’s Fed pivot thesis, evidenced by overnight index swaps that showed Fed rate hike bets firming up in 2023.

China’s city of Yiwu, located in Zhejiang Province, announced a partial lockdown after several positive Covid cases were identified. The key manufacturing hub has seen access to and from the city restricted, as well as the closure of gyms and restaurants, but factories remain open. That may change, however, if cases continue to climb. China’s “Zero-Covid” strategy remains vital to broader market sentiment, but the longer China battles Covid under the strategy, the more internal damage it risks to its economy.

Elsewhere, in the United States, lawmakers passed a key part of President Joe Biden’s agenda and likely the last major piece of legislation before the US midterms start later this year, an event that can potentially remove the Democrat’s majority in Congress. The bill includes nearly half a billion dollars in spending for energy and climate measures. It also removes a tax credit limit on electric vehicles (if they are built in North America), which should provide a boost for American-based EV companies. More broadly, the measure could provide a tailwind for metals that are heavily used in EVs, such as copper, cobalt, and lithium.

Notable Events for August 08:

Philippines – Retail Price Index YoY (April)

Indonesia – Consumer Confidence (July)

New Zealand – Business Inflation Expectations (Q3)

Japan – Eco Watchers Survey (July)

Taiwan – Balance of Trade (July)

AUD/USD Technical Outlook

AUD/USD prices are holding above the 20-day Simple Moving Average following several intraday attempts to break below the key MA. If bears succeed in piercing lower, prices may return to around 0.6700, where a Falling Wedge breakout started last month. The Relative Strength Index (RSI) cut under its midpoint recently, a bearish momentum signal.

AUD/USD Daily Chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter



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