AUD/USD – How Low Will it Go?

AUD/USD – How Low Will it Go?

AUD/USD – How Low Will it Go?

The relentless selling of commodities currencies continued today with the Australian dollars falling to fresh multiyear lows. AUD dropped more than 1% and is down 11% since the beginning of the year. The dynamics that have driven today’s decline also spells trouble for Australia’s economy going forward. The big story overnight was the sharp slowdown in Chinese manufacturing activity. According to the Caixin report, which was formerly HSBC, Chinese manufacturing contracted at its fastest pace in 15 months. For the last 2 weeks investors were able to take their minds off of China with the Shanghai Composite Index turning around but with today’s report, the fear of a deeper contraction in the Chinese economy has returned. When Chinese stocks were collapsing earlier this month every one suspected that China’s economy would be hit hard but the government restored confidence by massaging the data. Caixin is a private gauge that tends to provide a much more accurate assessment of the economy. Clearly the industrial sector is suffering and chances are more weakness is likely as the slide in Chinese stocks takes it toll on the economy. For AUD/USD this means the potential of further losses especially as this signals weaker demand from its largest trading partner. Also if the Fed is hawkish next week it could drive up the dollar. So on a fundamental basis, AUD/USD could certainly hit 70 cents.

Technically, 70 cents also remains the main support level for the currency pair but there is one other support to keep in mind – the 61.8% Fibonacci retracement of the 2001 to 2011 rally at 0.7190.

Chart Of The Day

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