AUD/USD: Aussie Slides to a Critical level
AUD/USD is back on shaky ground in early Asian trading on Friday as the US dollar continues to overpower its Australian counterpart.
The Australian dollar to US dollar exchange rate is doing business at 0.6702 at the time of writing, just above the two-year low recorded in July.
The Australian dollar has been in a pronounced bearish trend for the last month. Since reaching a two-month high of 0.7128 on August 12, the Australian currency has dropped over 6% against the greenback.
The reasons for the Aussie’s relative weakness are twofold. Firstly the US dollar index surged to a twenty-year high this week following the surprise rise in inflation. The Consumer Price Index for August came in at 8.3% versus the expected 8.1% increase. Subsequently, interest rate expectations moved higher taking the US dollar along for the ride.
Secondly, China’s economic slowdown is fueling concerns that Australia’s raw material exports will suffer. Goldman Sachs and Nomura are among the investment banks downgrading China’s growth projections. As such, the outlook for the Aussie is deteriorating while the buck continues to perform well.
The Australian dollar has never fared well when a global slowdown or recession is upon us, while the US dollar still looks rock solid.Ray Atrill, head of FX strategy at National Australia Bank, Sydney.
The bleak outlook for China, twinned with the stronger US dollar has forced the Aussie to a pivotal point on the chart. How AUD performs at this level could set the stage for the next big move in AUD/USD.
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Aussie Dollar Forecast
The daily chart shows AUD/USD comes under selling pressure each time the rate rises. Notably, rallies are becoming less pronounced, suggesting sellers are increasingly aggressive. As a result, the rate has pulled back to the key support of the July 14 low of 66.81.
A close below 66.81 will likely lead to more losses for the Aussie to US dollar rate. In this event, a slide towards the 65.00 level is possible. Furthermore, analysts at Commonwealth Bank of Australia predict the rate could trade as low as 0.6200 in the coming months.
The bearish view remains in place as long as the rate is below the 100-Day Moving Average (DMA) at 0.6948 (blue line). A daily close above this level, relieves the immediate pressure on the Aussie, likely leading to some short-covering.