The pair will likely continue falling as sellers target the next key support level at 0.6950.
Sell the AUD/USD pair and set a take-profit at 0.6950.Add a stop-loss at 0.7050.Timeline: 1 day.
Set a buy-stop at 0.7050 and a take-profit at 0.7135.Add a stop-loss at 0.6900.
The AUD/USD price pulled back in the overnight session as the market reflected on the strong US dollar, RBA minutes, and signs of weakness in China. It dropped to a low of 0.7020, which was significantly lower than this month’s high of 0.7140.
China Economy Slowing
The AUD/USD pair declined as the US dollar index bounced back after the relatively weak Chinese economic data. Numbers by the National Bureau of Statistics (NBS) revealed that the country’s retail sales, industrial production, and fixed asset investments rose at a slower pace than expected.
As a result, the People’s Bank of China (PBoC) decided to slash two interest rates in a bid to stimulate the economy. These numbers were important for the Australian dollar because of the vast amount of goods that the country sells to China.
The US dollar reacted to these numbers by gaining across the board. It rose against most currencies, including the euro and the British pound as volatility in the market rose. The closely-watched volatility index rose by more than 2.30%.
The AUD/USD pair also declined as the prices of most commodities declined. The Bloomberg Commodity Index (BCOM) declined by more than 1.47% to $129.40. In most cases, the Australian dollar is often seen as a proxy for commodities.
Meanwhile, the Reserve Bank of Australia published minutes of the past monetary policy meeting. In it, the bank decided to hike interest rates by 0.50% as it continued to battle the soaring inflation. The minutes showed that the members were committed to keep hiking interest rates in the coming months.
The next key data to watch will be the latest US housing starts and building permits data. Economists expect the numbers to show that the housing market continued contracting in July as interest rates rose.
On the 4H chart, we see that the AUD/USD price rose to a high of 0.7136 last week. It then pulled back after the latest Chinese economic numbers to about 0.700. As it dropped, it moved below the important support level at 0.7048, which was the highest level on August 1. It also moved slightly below the 25-day and 50-day moving averages and the standard pivot point.
The pair will likely continue falling as sellers target the next key support level at 0.6950. A move above the resistance at 0.7050 will invalidate the bearish view.
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