AUD/USD Price Analysis – Sep 05, 2023

Daily Price Outlook

The AUD/USD currency pair has been unable to halt its ongoing decline, edging closer to the year-to-date low reached in August. However, the downward trend can be attributed to a combination of factors. The weaker economic data from China and the Reserve Bank of Australia's decision to maintain its current interest rates have exerted downward pressure on the Australian Dollar. Simultaneously, the US Dollar has surged to its highest level in over three months, further contributing to the sharp decline in the AUD/USD pair.

AUD Weakening Amid China Concerns and RBA's Hold on Rates

It's worth noting that the Australian Dollar (AUD) started weakening due to concerns about China's slowing services sector, as a private survey showed its slowest growth in eight months, with the Caixin/S&P Global Services PMI dropping from 54.1 to 51.8 in August. This raised worries about China's economic health, dampening investor appetite for riskier assets and leading to aggressive selling of the AUD/USD pair.

Meanwhile, the Reserve Bank of Australia (RBA) stuck to its wait-and-see approach, keeping the Official Cash Rate (OCR) steady at 4.10% for the third consecutive month. The RBA mentioned that some further tightening might be needed to control inflation, aiming for the 2-3% target range by mid-2025.

Hence, the lack of fresh signals hinting at more rate hikes has fueled speculation that the tightening cycle could be ending, failing to impress bullish traders or support the AUD/USD pair.

USD Strength and Fed Rate Expectations Impact AUD/USD Pair

Furthermore, the drop in the AUD/USD pair can also be attributed to renewed demand for the US Dollar (USD), which has gained strength due to increasing expectations that the Federal Reserve (Fed) will maintain higher interest rates for an extended period. Despite some indications of a softening labor market in the US, markets are still factoring in the chance of another 25 basis points Fed rate hike by year-end.

This outlook drives US Treasury bond yields higher and propels the USD to a three-month high, intensifying the bearish sentiment surrounding the AUD/USD pair.

AUD/USD - Trade Idea

The AUD/USD pair has commenced today's trading session on a distinctly bearish note, evidenced by its breach of the intraday bullish channel's support. This development is suggestive of a bearish flag pattern, which is anticipated to exert downward pressure on the pair in forthcoming sessions. Initial objectives center on the 0.6400 mark, with a breach of this level potentially accelerating the pair's descent toward the 0.6300 milestone.

In light of these dynamics, a bearish outlook is projected for today, further substantiated by the pair's position below the EMA50. It's imperative to note, however, that any inability to penetrate the 0.6400 barrier could interrupt this bearish narrative, prompting a price recovery.

Today's anticipated trading spectrum is demarcated by a support level at 0.6360 and resistance at 0.6445.