Australian Dollar Falls on Lower Commodity Prices, China Growth Concerns

• The Australian dollar is falling due to the sharp decline in oil, iron ore and copper prices.
• The Australian dollar faced challenges after the latest PMI data showed that business activity in Australia slowed to a six-month low in July.
• The US dollar may face difficulties due to lower Treasury yields.

The Australian dollar (AUD) extended its losing streak for a ninth straight day on Thursday, primarily due to lower oilIron ore and copper. Since Australia is a net exporter of energy and minerals, its currency is particularly sensitive to commodity price fluctuations.

The Australian dollar also faced pressure from recent Purchasing Managers’ Index (PMI) data, which showed business activity in Australia slowed to a six-month low in July. Manufacturing activity remained in contraction, and growth in the services sector slowed.

The Australian dollar could be capped as the Reserve Bank of Australia is expected to delay easing its policy tightening compared to other major central banks due to persistent inflationary pressures and a tight labor market. Futures markets are currently pointing to a 20% chance that the RBA will raise interest rates at its August meeting.

the australian dollar/us dollar The pair also faced pressure from a stronger US Dollar (USD) as investors prepared for upcoming US GDP and personal consumption expenditures inflation data. The latest US PMI data suggested that private sector activity expanded at a faster pace in July, highlighting the resilience of US growth despite higher interest rates. The data provides Federal Reserve The Fed has some flexibility to maintain its tightening policy stance if inflation shows no signs of slowing.

Daily Market Movers Summary: Australian Dollar Falls on Slowing Business Activity

• The S&P Global Services Purchasing Managers’ Index (PMI) for the US rose to a reading of 56.0 in July, the highest in 28 months, up from 55.3 in June and beating market expectations of 55.3. Meanwhile, the composite PMI rose to 55.0 from the previous reading of 54.8, the highest reading since April 2022 and indicating sustained growth over the past 18 months.
• Slowing economic activity in China has added to selling pressure on the Australian dollar. Concerns about a weaker Chinese economy have been heightened by an unexpected rate cut by the People’s Bank of China on Monday. The People’s Bank of China cut its one-year medium-term lending facility rate to 2.30% from 2.50% on Thursday. In addition, the Bank of China, one of the world’s largest banks, announced a 10-20 basis point cut in its term deposit rates. Any change in the Chinese economy could impact Australian markets as the two countries are close trading partners.
• The Australian Judo Bank manufacturing PMI improved to 47.4 in July from 47.2 in June. Meanwhile, the services PMI fell to 50.8 in July from 51.2 in June. The composite PMI also fell, falling to 50.2 in July from 50.7 in June.
• Vice President Kamala Harris has just secured the 1,976 Democratic delegates needed to secure the party’s presidential nomination, media reports say. Harris is now the presumptive Democratic nominee for the November presidential election.
• New York Federal Reserve President John Williams said Friday that the long-term trends that caused neutral interest rates to decline before the pandemic are still in place. “My own estimates for r-star in the U.S., Canada and the euro area are roughly where they were before the pandemic,” Williams noted, according to Bloomberg.
• “The current pace of employment growth suggests that demand is resilient and cost pressures will remain,” Reuters quoted Shaun Langkick, head of macroeconomic forecasting at Oxford Economics Australia, as saying. “We believe the RBA will stay the course and keep interest rates on hold, but the August meeting will undoubtedly be a straightforward one.”

Technical Analysis: AUD/USD Falls to Near 0.6550

The Australian dollar is trading around 0.6570 on Thursday. Schedule The analysis indicates that the AUD/USD pair has broken the descending channel, indicating a strengthening of the bearish bias. The 14-day Relative Strength Index (RSI) is at the 50 level, indicating an oversold condition for the currency pair and hinting at a possible correction soon.

The AUD/USD pair may find support around the psychological level of 0.6500, followed by a rebound support at 0.6470.

On the positive side, a key resistance is at the lower bound of the descending channel at 0.6590, followed by the psychological level of 0.6600. A return to the descending channel could weaken the bearish bias and support the AUD/USD pair in testing the nine-day exponential moving average (EMA) at 0.6646. A break above this level could push the pair to test the upper bound of the descending channel around 0.6715, which could target a six-month high at 0.6798.

AUD/USD: Daily Chart