AUD/USD Price Analysis – July 23, 2024

Daily Price Outlook

Despite the risk-on market sentiment and potential rate hike from the RBA, the AUD/USD currency pair failed to halt its seventh consecutive session of decline and remained under pressure around the 0.6625 level, hitting an intraday low of 0.6621. This decline is attributed to the sharp drop in energy and metal prices.

Additionally, a weak outlook for the Chinese economy has led to copper prices hitting their lowest point in over three months and caused a decline in iron ore prices, further pressuring the Australian Dollar.

Conversely, the bearish US dollar, influenced by growing expectations of a Federal Reserve rate cut in September, has helped limit further losses in the AUD/USD pair. The Australian Dollar may receive some support from strong employment data, which suggest a tight labor market and raise the possibility of an interest rate hike from the RBA.

Investors are also awaiting Australian manufacturing and services PMI figures this week to assess the health of the economy.

Weak Chinese Economy and PBoC Rate Cuts Pressure AUD/USD Through Falling Commodity Prices

It is important to highlight that the weak outlook for the Chinese economy has driven copper prices to their lowest levels in over three months and caused a decline in iron ore prices, adding pressure to the Australian Dollar.

The People's Bank of China (PBoC) has reduced the one- and five-year loan prime rates by ten basis points, to 3.35% and 3.85%, respectively.

This adjustment could impact Australian markets due to their strong trade ties with China. Additionally, China's $715 billion hedge fund industry is bracing for stricter regulations next month, requiring higher asset thresholds and stricter investment and marketing rules, prompting some firms to seek more capital.

Therefore, the weak Chinese economic outlook and PBoC rate cuts could negatively impact the AUD/USD pair due to Australia's trade ties with China and pressure from falling commodity prices.

Strong Australian Employment Data and Potential RBA Rate Hike May Support AUD

Conversely, the Australian Dollar could receive support from robust employment data, which indicates a tight labor market and increases the likelihood of an interest rate hike from the Reserve Bank of Australia (RBA).

Investors are also looking forward to Australian manufacturing and services PMI figures this week to gauge the overall health of the economy.

Sean Langcake from Oxford Economics Australia observed that the current job growth reflects strong demand and ongoing cost pressures, suggesting that the RBA may keep rates steady. However, he noted that an August rate hike remains a possibility.

On the data front, the Australian Bureau of Statistics reported that Employment Change rose by 50,200 in June, well above the market forecast of 20,000. This strong job growth signals a robust labor market and could influence the Reserve Bank of Australia's interest rate decisions.

Therefore, the strong employment data and potential interest rate hike from the RBA could support the AUD, potentially strengthening the AUD/USD pair, especially if the upcoming PMI figures also show positive trends.

US Dollar Pressured by Fed Rate Cut Expectations and Market Reactions

On the US front, the decline in the AUD/USD pair may be short-lived due to the US Dollar facing pressure from expectations of a Federal Reserve rate cut in September. Fed Chair Jerome Powell and other officials have suggested that lower interest rates could be on the horizon due to recent progress on inflation.

Additionally, the market’s limited reaction to President Biden's withdrawal from the 2024 election is impacting the USD. Investors are increasingly focusing on potential benefits from Donald Trump's policies, despite concerns about higher inflation.

These shifts in investor sentiment and inflation expectations are likely to influence both currencies and impact the AUD/USD pair.

AUD/USD - Technical Analysis

The AUD/USD pair is trading at $0.66296, down 0.17% for the day. The 4-hour chart indicates a bearish trend, with the pivot point set at $0.6646. This level is crucial for determining the market's direction. If the price stays below this pivot point, the bearish trend is expected to continue.

Immediate resistance is found at $0.6670, followed by $0.6691 and $0.6716. These levels act as potential barriers to any upward movement. On the downside, immediate support is seen at $0.6621, with further support at $0.6602 and $0.6577, which could provide potential entry points for long positions if the price rebounds.

The Relative Strength Index (RSI) is at 19, indicating that the AUD/USD is in oversold territory. This suggests that a rebound could be imminent, although the overall trend remains bearish. The 50-day Exponential Moving Average (EMA) is at $0.6704, which supports the bearish outlook as long as the price remains below this level.

Given the technical indicators, the suggested trading strategy is to sell below $0.66453, with a take profit target at $0.66104 and a stop loss at $0.66691. This strategy aligns with the current bearish sentiment and key resistance and support levels.

In conclusion, AUD/USD's outlook remains bearish below the pivot point of $0.6646. Traders should monitor these key levels and technical indicators closely to adjust their strategies accordingly. A break above the pivot point could indicate a shift towards a bullish trend, while maintaining below it supports the bearish trend.

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