Australian Dollar Fundamental Backdrop

The Australian dollar extended its losses against the greenback this morning as global markets continue their risk-off sentiment. The Fed’s Mester delivered an aggressive statement yesterday anticipating rates above 4% with the expectation of no interest rate cuts in 2023. Naturally, this left the USD bid weighing on AUD/USD. Recessionary fears remain prevalent while COVID-19 concerns in China hurt the broader commodities complex adding to demand destruction fears. With the AUD being a major exporter to China, the resultant effect on the Australian dollar is negative.
 

Economic Calendar

Australian data from earlier this morning (see economic calendar below) showed the manufacturing sector heading into contractionary territory for the first tie since January this year while home loans significantly missed estimates pointing to a slowdown in the housing market. Later this afternoon we look forward to the U.S. ISM manufacturing release which is expected to lower than the July read at 52.

Source: DailyFX economic calendar
 

Technical Analysis

AUD/USD Daily Chart

(Click on image to enlarge)

Chart prepared by Warren Venketas, IG

AUD/USD price action shows a long lower wick on today’s daily candle but the close will determine whether or not the wick endures which may point to a subsequent upside. This being said, there is a developing candlestick pattern in the form of the head and shoulders formation. I have marked the neckline in blue. A confirmation close below may give bears additional impetus to pierce below the psychological 0.6800 support zone.

Key resistance levels:

• 0.6900

Key support levels:

• 0.6824 (23.6% Fibonacci)
• 0.6800
• 0.6700
   

IG Client Sentiment Data: Mixed

IGCS shows retail traders are currently LONG on AUD/USD, with 65% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment however, due to recent changes in long and short positioning we settle on a short-term cautious disposition.

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