Australian Dollar Down on Weak China Data. Is AUD/USD Ready to Break Out?

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CHINA RETAILS SALES, INDUSTRIAL PRODUCTION, AUD/USD – TALKING POINTS:

  • Australian Dollar down as July China IP, Retail Sales disappoint
  • Risk assets under pressure as equities continue early lead lower
  • Potential for AUD/USD to break out of recent range trade ahead

The risk-off sentiment from early Monday morning in Asia continued after the release of Chinese data that waslower than anticipated. The data showed the annualized July retail sales at 8.5% against 11.5% expected and annualized July industrial production at 6.4% compared to 7.8% expected. The house price index and fixed asset investment numbers also disappointed to the downside. This saw equity markets continue lower and the Australian Dollar come under pressure, while the Japanese Yen found support.

Today’s data comes as there are growing concerns for trade in the region, with several Chinese ports being forced to close due to the spread of the Delta variant coronavirus. Freight rates are already increasing and likely to continue higher with seasonality adding to demand for tankers going into the second half of the year. Globally, this will likely add further fuel to inflation flames that have the potential to undermine real returns across many asset classes. A further slowing in global trade adds to downward pressure for risk assets.

The AUD/USD would be vulnerable to a risk-off environment and additional downward pressure may come from the 10-year government yield spread between Australia and the US. Yields overall have retreated lower in recent sessions and the spread between Australia and the US continues in a trend lower, undermining support for the Australian Dollar.

Australian Dollar Down on Weak China Data. Is AUD/USD Ready to Break Out?

Chart created with TradingView

This week we see more data releases that will impact AUD/USD. On Tuesday we have the release of RBA meeting minutes that will give further insight to the banks thinking on inflation and the timing of tapering. Later that day, US retail sales numbers will be the focus for the market before the Australian unemployment numbers on Thursday. Any surprises in the data will give indications of market vulnerabilities.

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AUD/USD TECHNICAL ANALYSIS – RANGE TRADE ENVIROMENT ENDING FOR AUD?

The AUD/USD had been in a downtrend prior to this period of sideways consolidation in the range over the last month. A break of the current range channel 0.7290 – 0.7430 has the potential to provide direction for the rest of this quarter.

Australian Dollar Down on Weak China Data. Is AUD/USD Ready to Break Out?

Chart created with TradingView

AUD/USD TRADING RESOURCES

— Written by Dan McCarthy, Strategist, APAC for DailyFX

To contact Dan, use the comments section below or @DanMcCarthyFXon Twitter

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