The AUD/USD pair continues its downward trajectory, now heading towards the 0.6500 support level. This decline marks the ninth consecutive trading session of losses for the Australian Dollar (AUD). The primary driver behind this weakness is the growing apprehension surrounding China’s economic outlook and its potential impact on Australia.
Several factors have contributed to the negative sentiment surrounding the Chinese economy:
- Third Plenum Disappointment: The recent Third Plenum meeting failed to deliver the substantial liquidity measures that investors were hoping for to stimulate economic growth.
- PBoC Rate Cut: The People’s Bank of China (PBoC) surprised markets with a 10 basis point cut to its short-and long-term Loan Prime Rate (LPR), raising concerns about the state of the economy.
- Slowing GDP Growth: China’s second-quarter GDP growth fell short of expectations, further fueling worries about the country’s economic health.
The Australian Dollar, often seen as a proxy for China’s economic performance, has been severely impacted by these developments. The lack of significant catalysts for Chinese growth has also weighed heavily on base metals, with global iron ore prices dropping to their lowest level in three weeks. This is particularly concerning for Australia, which is a major exporter of iron ore.
Adding to the pressure on the AUD is the subdued market sentiment ahead of the release of the US Q2 flash GDP data. While the US economy is expected to have expanded at a robust pace, the GDP Price Index is anticipated to have decelerated, potentially leading to expectations of earlier rate cuts by the Federal Reserve (Fed).
