AUDUSD's poor start to the week; eyes on 0.9000

It’s shaping up to be another tough week for the Australian dollar. AUDUSD is falling under the weight of disappointing Chinese economic data, strong US economic data, and softening commodity prices. The commodity currency has also had a target on its back for a long time, thus there’s no shortage of bears waiting to attack.

Last week, strong jobs, retail sales and confidence figures added fuel to the USD rally. When combined with other strong a US economic data of late, this latest batch of encouraging economic figures have the market expecting the FOMC to ramp-up its bullish talk at this week’s policy meeting. The Fed is widely expected to tapper its asset purchases by another 10bn and possibly signal that interest rates will rise sooner than previously anticipated.

In China, there are ongoing concerns about the health of the economy as it comes to terms with a deteriorating property market. Therefore, the advent of more disappointing economic data out of the world’s second largest economy over the weekend is hurting investor sentiment. Retail sales rose 11.9% in the year to August, which was softer than an expected 12.1% rise and it doesn’t bode well for the health of domestic demand. In fact, retail sales growth has been trending lower for some time now, even as Beijing attempts to transition the economy into one that is more focused on domestic demand. Furthermore, industrial production data was released at the same time which showed that a key part the economy is slowing down (6.9% y/y vs. prior 9.0%).

As if the aforementioned USD strength and concerns about China weren’t enough, key commodity prices continue to spiral lower. This fall in iron ore, copper and other commodity prices has direct negative implications for the Australian dollar. While the AUD had been able to hold its ground against the backdrop of falling commodity prices earlier this year, a lot of things that were supporting the commodity currency are starting to look fairly flimsy.

As central banks in other parts of the world start to prepare for higher interest rates, it should decrease the appeal of the aussie. And, the lack of new resource projects coming online may decrease FDI into Australia. Overall, there’s not much light on the horizon for AUDUSD and it may continue to fall for majority of the reminder of the year, albeit at a slower pace than this month’s bloodbath.

From a technical standpoint, AUDUSD’s sell-off has reached a crucial point as it tests a key psychological support zone around 0.9000. This level has proven to be a key pivot zone for the pair in the past, thus a break here could spell disaster for price in the near-term. In any event, this week’s policy meeting at the FOMC may determine the short-term direction of AUDUSD.

Events to watch:

• RBA meeting minutes (Tuesday)
• US PPI (Tuesday)
• US core CPI (Wednesday)
• FOMC (Wednesday)
• US building permits (Thursday)
• US unemployment claims (Thursday)
• US Philly Fed Manufacturing Index (Thursday)
• Scottish Independence vote (Thursday)

Source: FOREX.com