AUD/USD Slips as Sellers Break Key Support
Market Overview
The Australian dollar faced significant selling pressure on Tuesday, driven by falling iron ore prices and disappointing local economic data that pointed to a slowing economy. The Dalian iron ore futures, a major indicator for the Australian economy, dropped more than 3% on Tuesday, following a 4% decline on Monday. This sharp decline was due to a series of weak economic reports from China, Australia’s largest trading partner and a key consumer of commodities. As Australia is a commodity-exporting nation, falling iron ore prices directly weaken the Australian dollar. Additionally, the less favorable economic outlook has reduced the attractiveness of the Aussie dollar further, adding to the bearish sentiment.
Technical Analysis
On the four-hour chart, AUD/USD had been in an uptrend since early August. However, recent price action indicates that this uptrend has come to an end, as sellers have taken control of the market. After a period of consolidation between the 100 and 34-period moving averages, the pair broke below the key support level at 0.67511, falling below the 100-period moving average. This shift in momentum suggests further downside potential, with the next targets for sellers set at 0.67217, 0.67079, and 0.66785. Momentum oscillators like the MACD and RSI are in the oversold territory, reinforcing the bearish outlook, and moving averages are converging downward, indicating increased selling pressure.
Alternative Scenario
However, if buyers manage to regain control and push the price back above the broken support level of 0.67511, resistance will come into play at 0.67676 and the upper resistance at 0.67943. A sustained break above 0.67943 would suggest a bullish reversal, signaling a potential resumption of the uptrend.
Key Levels
Resistance Levels:
- Resistance 3: 0.67943
- Resistance 2: 0.67676
- Resistance 1: 0.67511
Current Price: 0.67368
Support Levels:
- Support 1: 0.67393
- Support 2: 0.67217
- Support 3: 0.67079
- Support 4: 0.66785
Key Events to Watch
Tuesday’s data indicated that government spending was the main driver of economic growth in the last quarter, contributing 0.4 percentage points (ppts), while net exports only added 0.2 ppts, falling short of the expected 0.6 ppts. Overall, this report highlights downside risks for the upcoming GDP report due on Wednesday, where economists anticipate a quarterly growth of 0.3%. A negative or lower-than-expected GDP result could significantly impact interest rate expectations. Markets are currently pricing in a one-in-three chance of a rate cut in November and a 72% chance of a cut in December, partially because almost all of RBA’s counterparts are expected to lower their rates by then.
Conclusion
The Australian dollar is under pressure due to declining commodity prices and a slowing economy, highlighted by weaker-than-expected data from China and domestic economic indicators. The technical setup for AUD/USD is bearish following the break below key support levels and the alignment of momentum indicators favoring sellers. Further downside is likely unless a significant bullish reversal above 0.67943 occurs. Traders should monitor Wednesday’s GDP report closely, as it will provide further insights into the economic health of Australia and could influence future rate cuts by the RBA. Any surprise in this data could significantly alter market expectations and the currency’s direction.
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