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The pair will likely continue falling as sellers target the next support at 0.6800, which is slightly below the 23.6% retracement level.
Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6800.Add a stop-loss at 0.6900.Timeline: 1-2 days.
Bullish view
Set a buy-stop at 0.6900 and a take-profit at 0.7000.Add a stop-loss at 0.6800.
The AUD/USD price slipped to the lowest level since July 19 as worries about the Chinese economy escalated. The pair also crashed as the US dollar made a spectacular comeback. It dropped to a low of 0.6868, which was lower than this month’s high of 0.7135.
Recession risks
The AUD/USD price declined as investors continued to worry about the rising risks of a recession in China and around the world. On Monday, China’s central bank decided to slash interest rates in a bid to support the ailing economy.
This decision came a week after the bank lowered two key interest rates after the weak retail sales and industrial production data. Additional reports showed that the country’s real estate sector, which accounts for a third of GDP was struggling. Country Garden, the biggest property developer said that its profit fell by 70% in the first half of the year.
As a result, there are concerns that the slowdown in China will have an impact on the global economy. This, in turn, has led to a sharp decline of most commodities like copper, crude oil, and iron ore. The Australian dollar is often seen as a proxy for commodities.
The AUD/USD pair sell-off continued after last week’s minutes by the Federal Reserve. The minutes showed that the bank’s officials were committed to continuing with the tightening process in a bid to fight the rising inflation.
While inflation has declined slightly, most Fed speakers have said that higher rates are necessary. As a result, the yield of the 10-year Treasury yield rose to 3.027% while the 30-year rose to 3.23%. At the same time, the VIX index jumped by over 17% while the US dollar index jumped to $109. The pair will next react to the latest US new home sales data and flash PMI numbers.
AUD/USD forecast
The four-hour chart shows that the AUD/USD pair has been in a strong bearish trend in the past few days. This sell-off accelerated when the pair moved below the important support level at 0.7048, which was the highest point on August 1. It managed to move below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved slightly above the oversold level.
Therefore, the pair will likely continue falling as sellers target the next support at 0.6800, which is slightly below the 23.6% retracement level.
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