AUD under pressure as news weakens its outlook

Justin Freeman
Stock Price Chart with indicator line

The Aussie dollar appeared to be hitting a bit of a rough patch as a series of news releases were released yesterday.

As traders reacted to this forex news, the markets seemed to be looking for signals to push them in a certain direction as they tried to make sense of the news.

When looking at the health of the Australian economy and the overall health of the AUD, one of the key metrics to look at is the state of the Chinese economy.

China is Australia’s largest trading partner, so any economic developments in China, and in Asia-Pacific more generally, will often have a knock-on effect for the Australian dollar.

Thankfully for forex trading market watchers keeping a close eye on the AUD, the Chinese economy appears to be recovering well, despite being the original epicentre of the pandemic.

It seems that the early, strict measures that the Chinese authorities took to shut down the country have allowed them to kick economic production back into gear.

However, as China is an export-heavy economy, the health of its major trading partners will inevitably have a big impact on its own health, and with the US and European markets still sluggishly kicking back into gear, this is having a noticeable impact on the Chinese economy.

As this relates to Australia, however, things seem to be strangely positive despite some localised outbreaks of COVID-19 across a number of regions in Australia.

The continued lockdown in Melbourne, for example, does appear to be preventing the ASX 200 from fully recovering

In contrast to the AUD/RMB, the AUD/USD appears to be notably slower in picking up momentum.

In a recent press release, the Governor of the Reserve Bank of Australia appeared to be tempering expectations of a return to economic form, noting that the economic outlook for Australia was very uncertain, and that certainty might not come for some time.

AUD/USD traders will no doubt be eying up the release of US retail sales data in the coming days, which could help the AUD rebound somewhat and to consolidate the bullish chart patterns that seem to be beginning to form.

However, it should be remembered that any improvement in the USD today off the back of these figures might be reversed by the US-China trade talks, which are set to take place next week.

The EUR/AUD, on the other hand, appears to be falling significantly off its highs for this year, and the currency pair seems to be unable to find its 2020 opening price of 1.60 – despite coming very close to it in early June.

Depending on how well the various EUR central banks implement and manage their recovery plans, this could push the EUR into a stronger position relative to the AUD.

With all that said, in times as uncertain as these, every press release and news report appears to have the potential to push the AUD in one way or another – what will manage to tip the balance next, however, remains to be seen.

Justin Freeman

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