- There was a surge in demand for safer assets due to concerns about China’s economy.
- The People’s Bank of China established a daily fixing for the yuan much stronger than anticipated.
- The People’s Bank of China unexpectedly reduced rates earlier this week.
Today’s AUD/USD price analysis is bearish. The dollar fell slightly on Friday but remained poised to secure its fifth week of gains.
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This upward trend came due to a surge in demand for safer assets due to concerns about China’s economy. Moreover, there are expectations that US interest rates will remain elevated.
Surprisingly, the People’s Bank of China established a daily fixing for the yuan much stronger than anticipated. Still, China’s economic challenges have intensified, evident in the fact that China Evergrande, a prominent property developer, sought protection under Chapter 15 in a US bankruptcy court.
Moreover, concerns regarding default risks in China’s shadow banking sector have grown. Beijing’s stimulus efforts have fallen short amid the increasingly gloomy economic outlook signaled by recent data. However, the People’s Bank of China unexpectedly reduced rates earlier this week, widening the yield gap with the US.
“The most influential factor driving market sentiment is the unfolding developments in China’s distressed financial and property sector,” remarked Francesco Pesole, an FX strategist at ING.
The Australian dollar often mirrors China’s economic performance and has been tracking the yuan lately. Initially, the Aussie gained ground but flattened at $0.6404. This came after it had reached a nine-month low of $0.6365 on Thursday.
Similarly, the US dollar index, measuring the currency against six major counterparts, remained stable at 103.40. This followed its touch of a two-month high at 103.59 on Thursday.
AUD/USD key events today
There won’t be any significant economic reports from the US or Australia today. Therefore, the pair might end the week quietly.
AUD/USD technical price analysis: Bears focus on breaching 0.6400 support.
On the charts, AUD/USD continues its descent, with bears aiming to break below the 0.6400 support level. The bearish bias strengthens whenever the price breaks below a strong support level.
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Moreover, the strength of the downtrend can be seen in how the price respects the 30-SMA as resistance. On the other hand, solid bearish momentum can be seen in the RSI, which has mostly stayed below 50 since the downtrend began. Therefore we might soon see a retest of the 0.6350 support.
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