The AUD/USD exchange rate slipped for the third consecutive trading day, closing near 0.6515, following a retreat from its year-to-date high of 0.6590. This decline came amid mixed macroeconomic data from China, Australia’s largest trading partner, and key inflation figures from the United States.
Despite the pullback, the technical setup suggests the pair may be poised for a rebound as it tests a crucial support zone within an ascending channel pattern. In this article, Fletrade brokers unpack the key elements of the topic with clarity and detail.
China and US Macro Data Impact
The Australian dollar is deeply tied to the performance of China’s economy due to Australia’s commodity export dependence, particularly iron ore and coal. This relationship makes Chinese economic reports a major driver for the AUD/USD forex pair.
The recent China Q2 GDP report showed that the economy grew by 5.2% year-over-year, slightly above market expectations of 5.1%, but slower than the 5.4% growth recorded in Q1.
Importantly, China’s unemployment rate held steady at 5.0%, signaling some labor market stability. However, Chinese retail sales, a proxy for domestic demand, disappointed slightly, rising 4.8% in the June meeting but not beating expectations. The mixed nature of these data points triggered some uncertainty in market sentiment, contributing to the recent weakness of the Australian dollar.
On the U.S. side, attention was focused on the June Consumer Price Index (CPI) data. According to the Bureau of Labor Statistics (BLS), headline CPI rose 2.7% year-over-year, up from 2.4% in May, aligning with forecasts.
The core CPI, which strips out volatile food and energy prices, climbed from 2.8% to 2.9% annually and 0.3% month-over-month, also slightly underwhelming.
While these inflation figures reflect persistent price pressures, they still fell short of triggering any hawkish surprises. Importantly, this marks the fifth straight month that core CPI has missed forecasts, reinforcing expectations that the Federal Reserve is likely to initiate a rate cut cycle starting in September.
These expectations have weakened the US dollar’s bullish momentum, opening the door for a potential AUD/USD recovery in the near term.
Upcoming Catalysts to Watch
Beyond CPI, forex traders should monitor upcoming U.S. macroeconomic releases. These include the Producer Price Index (PPI), which may confirm or challenge the narrative that inflation is cooling across the supply chain.
In addition, the US manufacturing output and industrial production figures will shed light on the strength of the real economy.
Any further signs of economic slowdown, especially in industrial activity, could increase the pressure on the Federal Reserve to accelerate its policy easing, possibly putting additional downward pressure on the US dollar and supporting the Australian dollar.
AUD/USD Technical Analysis: Bounce Likely
From a technical analysis standpoint, the AUD/USD currency pair is currently testing an important support region following its recent pullback. The daily chart shows that the pair has retreated to 0.6515, which coincides with the lower boundary of an ascending channel. It has also moved slightly below the 61.8% Fibonacci retracement level from the recent swing low to the year-to-date high at 0.6553, suggesting that the pullback may be nearing exhaustion.
Notably, the pair remains above its 50-day Exponential Moving Average (EMA), which has historically acted as a dynamic support level during bullish phases. The preservation of this level points to continued bullish bias in the medium term.
If bullish momentum returns, the AUD/USD could rebound toward the resistance area at 0.6600, a psychological level and former multi-day high. A successful breakout above this level would open the path toward 0.6677, the November 7th high, which could act as the next major resistance level.
Key support zones lie near 0.6500, and a breakdown below this level could expose the pair to further downside toward the 0.6450 handle. However, as long as the price remains within the ascending channel and above the 50-day EMA, the technical outlook remains constructive.
Summary
In summary, the AUD/USD currency pair is navigating a temporary pullback, driven by mixed Chinese economic data and modest U.S. inflation surprises. However, the broader macro landscape, especially the Fed’s anticipated policy easing and the resilience in China’s economic data, supports the view that the pair may rebound from current levels.
With the AUD/USD sitting at a technical inflection point and with upcoming catalysts like PPI and industrial production data due from the U.S., the pair remains in focus. Traders should be on the lookout for a bullish reversal signal, particularly if the macro narrative around Fed easing intensifies or if Chinese stimulus efforts resume.
