AUD/USD Slips Under Downtrend Support

AUD/USD traded along downtrend support for around a month. It has now slid below this falling line. While the break didn’t trigger a huge plunge, a failure to recapture this line could lead to more falls.

The Australian dollar is under pressure due to a heated debate about the future of the country’s mining sector, after the collapse of iron ore prices. A less-than-expected GDP figure didn’t help either.

The fall can be seen on the chart:

Australia’s became a mining empire in recent years, exporting iron ore among other commodities to China and other Asian countries. Mining projects take a long time to materialize, and while capacity seemed to have reached a peak, demand has somewhat weakened.

However, the big plunge in iron and coking coal prices caught many by surprise. Major companies warned about earnings and cancelled future projected. A comment by an Australian minister about the end of the mining boom started a heated debate.

The Australian dollar started descending from 1.06 while the mood in Europe was improving, showing how much this was an Australian issue.  AUD/USD slid along downtrend support since then.

And now, weak GDP sent it below this line. To be fair, GDP wasn’t that bad: the Australian economy grew by 0.6% in Q2 2012, after growing by 1.4% in Q1 (1.3% was originally reported). Expectations were for a 0.7% growth rate in Q2. Taking into account the revision, there’s no room for disappointed.

Nevertheless, the slightly weaker than expected headline figure was enough to push the pair under 1.0220 all the way to 1.0167 before it stage a recovery.

With this fall, the pair broke under downtrend support, and it is now struggling to recapture this line. The most obvious support line is AUD/USD parity, which isn’t so far at the moment.

On the way, there are other hurdles. For more, see the Aussie dollar forecast.