Aussie hit by weak GDP and China worries

The Australian Dollar has been under pressure since the past couple of weeks especially due to the concerns of a large scale slowdown from China. While the initial Yuan devaluation caused the Aussie to plummet, the currency managed to stabilize later on. Risk sentiment however has kept the commodity currency pressured to the downside.

Earlier this week, the RBA decided to leave interest rates unchanged at 2.0%. Its monetary policy statement was largely seen as neutral, showing that the Australian Central bank was by and large satisfied with the exchange rate of the currency which has weakened by over -11% since May this year. The Aussie dollar did not react much to the inaction by the RBA. The Central Bank however kept its option open to maintain an accommodative monetary policy and would take further decisions depending on how the economic data would unfold.

Today’s data from Australia showed that the quarterly GDP for the Australian economy slowing down sharply. Growth in the second quarter increased by a mere 0.2%, falling below estimates and posting one of the slower quarterly GDP growth in the country in over 3 years. On an annualized basis, the Australian GDP was down to 2.0% growth missing estimates of 2.2%, while slowing down from 2.3% previously.

The Aussie could come under additional pressure later in the week as the US monthly jobs report is due on Friday, where expectations are for the US unemployment rate to have fallen to 5.2% from 5.3% currently. While inflation remains the main issue, the labour markets have so far managed to post a healthy trend in growth in terms of the monthly jobs being added to the economy, and one that offers a fair reason for the Fed to start tightening its monetary policy. This could inadvertently put additional pressure on the AUDUSD in the medium to long term.

On the monthly charts, AUDUSD is trading just below a major monthly support of 0.7155. In the event of a close above this support, the AUDUSD could potentially spark a corrective rally. To the downside, the next major monthly support comes in at 0.633.

On the weekly charts, the AUDUSD shows a strong confluence of support near 0.7155 and the price channel’s lower trend line, indicating that further declines in AUDUSD could only be possible on a major catalyst rather than technical trading. To the upside, a bounce off the current levels has the potential to see AUDUSD correct to the previous resistance level at 0.80905 for a retest. There is also a bullish divergence to the RSI being formed which also adds some bias to the upside.

While 0.809 region of resistance could attract sellers at this level, we will need to see a bullish candlestick pattern at or near the current lows in order to ascertain this view. To the downside, in the event that price breaks off from the current price channel, the markets could be seen as very bearish for the AUDUSD which will most likely see a sharp decline to the next lower monthly support at 0.633