The Australian dollar is taking it on the chin today. In the North American session, AUD/USD is trading at 0.6925, down 1.30% on the day.
China’s weakness weighing on Aussie
The Australian dollar is having a miserable week, down 2.76%. This has wiped out almost all of last week’s gains of 3.05%, as the Aussie continues to show strong volatility.
This week’s woes have been driven by developments in China. The People’s Bank of China surprised the markets by lowering its 1-year MLF loans to 2.75%, down from 2.85%. The spike in Covid cases and the worsening property crisis have resulted in a decline in credit growth, and the PBOC has loosened policy in response to the deteriorating economic conditions. A sneeze in China can result in a nasty cut for Australia, as the Asian giant is Australia’s number one trading partner. Fears of a significant slowdown in China have sent commodity prices lower, including iron ore, a key Australian export.
Earlier today, Australian wage growth rose to 2.6% YoY in the second quarter, short of the estimate of 2.7% (2.4% prior). The RBA considers wage growth an important indicator of the resilience of inflation, and a lower-than-expected reading lends support to the argument that the RBA might ease up on the size of future rate increases. This has also weighed on the Australian dollar today.
The Federal Reserve has been consistent in its message that inflation is far from beaten and additional rate hikes are coming. But is anyone listening? Since the surprising inflation report which showed a decline in CPI, the markets have been holding onto the idea that the Fed will reverse directions next year, which has sent the US dollar sharply lower. The Fed minutes will be released later today, and it’s likely that the tone of the minutes will be hawkish. It will be interesting to how investors respond, and the minutes should be treated as a market-mover for the US dollar.
- There is resistance at 0.7053, followed by a monthly resistance line at 0.7122
- AUD/USD has support at 0.6968 and 0.6902
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