Bears take control as China’s stimulus update disappoints investors

• AUD/USD draws sellers for fourth consecutive day and falls to a three-week low.
• China’s state planner did not announce a new stimulus and undermined the Australian.
• The minutes of the RBA’s September meeting do nothing to impress the bulls or provide any impetus.

The AUD/USD pair extends its downtrend for a fourth straight day – marking the fifth day of a negative move in the past six – and dropped to a three-week low on Tuesday. The Australian dollar (AUD) began to lose ground after China’s National Development and Reform Commission – said the economy faces more complex domestic and external environments. The state planner has also not announced any major new stimulus plans, revealing investors. This, along with a generally weaker tone around equity markets, are proving to be key factors putting pressure on the risk-sensitive Aussie.

AUD bulls appear unimpressed by minutes from the Reserve Bank of Australia’s (RBA) September meeting, which revealed the board discussed scenarios for lowering and raising interest rates going forward. In addition, board members felt that not enough had changed from previous meetings and that the current cash rate best balanced risks to inflation and the labor market. The US dollar (USD), on the other hand, remains on the defensive below the seven-week high reached last Friday. This, in turn, helps the AUD/USD pair find some support ahead of the 0.6700 round-digit mark and defend the 50-day simple moving average (SMA).

Meanwhile, investors trimmed their bets on another excessive interest rate cut by the Federal Reserve (Fed) in November, following Friday’s upbeat US jobs report that indicated a still resilient labor market . Not-so-favorable expectations allow the benchmark US 10-year Treasury yield to hold above the 4.0% mark and limit USD losses. In addition, the risk of further escalation of geopolitical tensions and full-scale war in the Middle East should benefit safe haven money. This in turn suggests that the path of least resistance for the AUD/USD pair remains to the downside.

Going forward, there is no relevant economic data on market movement due out from the US on Tuesday, leaving the USD at the mercy of Fedspeak. The focus, however, will remain glued to the minutes of the FOMC meeting on Wednesday, followed by the US Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday respectively. This will play a key role in influencing USD price dynamics in the short term and help determine the next stage of a directional move for the AUD/USD pair.

Technical perspectives

Technically, any further decline is likely to find some support near the 100-day SMA, currently pegged near the 0.6690-0.6685 region. The said area should now act as a key pivotal point which, if decisively broken, will set the stage for an extension of the recent sharp pullback from the mid-0.6900s, or the February 2023 high reached on past. With the oscillators on the daily chart just starting to gain negative traction, the AUD/USD pair could become vulnerable to challenge the all-important 200-day SMA around the 0.6625-0.6620 area. The latter coincides with September’s monthly low and is closely followed by the 0.6600 threshold, below which spot prices could weaken further.

On the other hand, the 0.6760-0.6770 region now seems to act as an immediate obstacle ahead of the 0.6800 round figure and the 0.6815-0.6820 supply zone. Some subsequent buying will suggest that the downtrend seen over the past week has run its course and turned the trend in favor of bullish traders. Further short-covering move could lift AUD/USD to the intermediate hurdle of 0.6870-0.6875 en route to the 0.6900 threshold and yearly (YTD) peak around the 0.6940-0.6945 region.

AUD/USD Daily Chart