During the past week, the Australian dollar was the worst performing major currency in the world. Amid strong US Dollar strength, the AUD/USD pair fell from a close above 0.6297 to a low of 0.6170. This could be the beginning of a bear flag pattern. The price action also shows the Aussie is vulnerable to the looming concerns over the Chinese economy.
The 20th China Communist Party Congress concluded Sunday, with Xi Jinping securing the third leadership term. China’s economic outlook remains bleak, with factory gate inflation printing negative for the first time since 2020. China’s economic growth has slowed, and the state council Premier Li Keqiang announced a 19-point stimulus plan. The plan includes 1 trillion Yuan in stimulus funds, and focuses on infrastructure projects. The Chinese government plans to boost the growth of its economy, but it remains unclear if the plan will achieve the goals set.
The AUD/USD forecast is dominated by the US Dollar, but the Aussie has been relatively strong of late. Several factors have been attributed to the AUD’s recent strength, including high liquidity in the market and greater exposure to Asian economies. While these factors may have helped the Australian dollar, a weakened Chinese economy is also likely to have a negative impact on the AUD.
AUD/USD Forecast: The Aussie is a major exporter to China, so its economic performance will likely reflect the changes taking place in the Chinese mainland. The AUD is likely to pay close attention to metal prices, as well as copper and aluminum. While a strong economy will likely be positive for the AUD, falling commodity prices are likely to have a negative effect.
As the AUD is a commodity currency, it reacts strongly to the main export prices. Iron ore is a big component of Australia’s exports, and the AUD has historically been tied to the price of iron ore. However, the price of iron ore has fallen in recent months, which coincided with increased investor interest in the commodity. This could loosen the AUD’s grip on the commodity, but it is unclear if this will have an impact on the AUD.
The AUD/USD Forecast: The RBA has recently shifted its policies. Its actions have taken back seat to the Federal Reserve’s, which has a strong control over monetary policy. The RBA may choose to wait to publish its monthly CPI print until late October. If it does, the CPI print should provide short-term direction for the AUD/USD pair.
Iron ore is one of Australia’s most important exports, accounting for more than 25% of goods exports in 2014/2015. In recent years, the price of iron ore has become an important indicator of the Australian economy. The RBA increased the weight of iron ore in the country’s export basket. However, the total value of iron ore exports declined by nearly a third between 2014/2015 and 2013/2014. The Australian government has attempted to lessen the reliance on the commodity sector. It is likely the AUD will pay closer attention to iron ore prices in the coming months
