Bearish view
- Set a sell-stop at 0.6636 and a take-profit at 0.6550.
- Add a stop-loss at 0.6755.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6690 and a take-profit at 0.6800.
- Add a stop-loss at 0.6600.
The Australian dollar erased most of the gains made on Monday as concerns about a slowing Chinese economy coincided with hawkish RBA minutes. The AUD/USD exchange rate dropped to a low of 0.6658, a few points below Monday’s high of 0.6710.
Slowing Chinese economy
The RBA published minutes of the last meeting on Tuesday. In that meeting, the bank caught many analysts by surprise by hiking rates by 0.25% after pausing for three minutes. The bank argued that inflation remained substantially higher while the labor market was significantly tight.
Analysts now expect that the RBA will hike interest rates by 0.25% in the coming meeting. In a statement, analysts at National Bank of Australia said that they expect rates will jump to 4.1% by August and then end the year at 4.35%. The same view was shared by analysts at ANZ, wh expects the bank to hike by 0.25% in August.
The biggest risk for the RBA is that the global economy is going through a tough period. Data published on Tuesday revealed that China’s recovery was not as fast as what analysts were expecting. Industrial production, fixed asset investments, and retail sales jumped at a slower pace than expected despite the reopening.
China is an important country for Australia since it buys most of the country’s goods. This slow recovery has also impacted most of Australia’s commodities like natural gas, iron ore, coal, and copper, which have all slipped recently.
The US also published weak retail sales numbers. According to the commerce department, the country’s retail sales rose by 0.4% on a MoM basis and by 1.6% on a YoY basis. The two increases were lower than the median estimates of 0.8% and 4.20%, respectively. According to the economic calendar, the only data to watch on Wednesday will be the upcoming US building permits and housing starts.
AUD/USD technical analysis
The Australian dollar has been in a downward trend in the past few days. This sell-off started when the pair failed to move above the key resistance point at 0.6816 last week. It has moved below the 23.6% Fibonacci Retracement level.
The pair also has formed what looks like a triple-top pattern at about 0.6800 and moved below the Woodie pivot point. Therefore, the pair will likely continue falling as sellers target the next psychological level at 0.6600. This view will be confirmed if it moves below last Friday’s low of 0.6636.
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