Created on December 17, 2024

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Bullish View

• Buy the AUD/USD pair and set a take-profit at 0.6450.
• Add a stop-loss at 0.6300.
• Timeline: 1-2 days.

Bearish View

• Sell the AUD/USD pair and set a take-profit at 0.6300.
• Add a stop-loss at 0.6450.

The AUD/USD exchange rate remained on edge at a crucial support level after the relatively weak Chinese economic numbers. It was trading at 0.6370, a few points above last week’s low of 0.6338.

Australian and China’s Economic Numbers

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The AUD/USD pair retreated after several reports showed that the Chinese and Australian economies were slowing.

Data by S&P Global revealed that Australia’s manufacturing PMI dropped from 49.4 in November to 48.2 in December. A PMI reading of less than 50 is a sign that a sector is contracting. The services PMI also dropped from 50.5 in November to 50.4.

Meanwhile, in China, Australia’s biggest trading partner, house prices dropped by 5.7% after falling by 5.9% in the previous month. Fixed asset investment slowed to 3.3%, while retail sales slowed to 3.0%. Industrial production also grew at a slower pace than expected.

Therefore, there are concerns that the economy is not doing well and that it will not hit its 5% target this year. This is important for Australia because it is its biggest trading partner.

Indeed, the impact of China’s slowdown explains why the Australian economy is not doing well. Recent data showed that the economy grew by 0.8% in the third quarter, its lowest level since 1991.

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Therefore, based on last week’s meeting, analysts expect that the Reserve Bank of Australia will slash interest rates in its February meeting. The bank is the last major one that has not slashed rates this year.

The next key AUD/USD news will be the upcoming Federal Reserve interest rate decision and US retail sales numbers. Economists expect the Fed to slash rates for the third time in this meeting. It will then have a hawkish tilt because of the rising inflation worries.

AUD/USD Technical Analysis

The daily chart shows that the AUD/USD pair has been in a strong downtrend and currently sits at a key support level at 0.6340, its lowest level since November last year. It has remained below the 50-day and 25-day Exponential Moving Averages (EMA).

The pair has, however, formed a falling wedge pattern, a popular bullish reversal sign. Its Relative Strength Index (RSI) has also formed a wedge chart pattern. Therefore, the pair will likely have a brief comeback in the next few days. If this happens, the next point to watch will be at 0.6450. A drop below the support at 0.6338 will point to more downside.

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