The Australian dollar (AUD) rose to 0.6707 against the US dollar (USD) on Wednesday. Now, it succumbed to a broad bearish correction phase. The Federal Reserve announced it was lowering its benchmark interest rates by 25 basis points. This decision has had a major impact on foreign exchange dynamics, prompting a major downward trend. The AUD/USD pair has recently just broke below major support. Market analysts are no doubt holding their breath on forthcoming economic releases in search of further clues about Australia’s current economic malaise.
This week, AUD/USD broke below a bullish support line running near 0.6600, sending a strong bearish message. The duo fell under the 100-period Simple Moving Average (SMA) on the 4-hour chart. That average is 0.6593 now. With a potential weekly close below these key levels, traders are on alert for signals that might confirm a prolongation of this bearish trend.
Recent Developments Impacting AUD/USD
During the past couple of months, the movement of AUD/USD has been mostly due to changes in monetary policy from the Fed. The first cut, a 25-bp rate reduction, has already hit the Aussie dollar hard. In consequence, it has recently found itself under extreme bearish pressure. Market participants, too, are watching to see what happens. If they do remain underneath the 0.6600 level, selling could continue deeper with first support anticipated at 0.6580, and then at 0.6560.
Here’s what to expect. With this increased volatility, economic markers will be produced at a more important function in establishing industry’s feeling. The Reserve Bank of Australia is approaching a pivotal point in its conduct of monetary policy. Because of this, the next slate of economic releases will be critically important. According to analysts, positive performance metrics would further enhance the Australian dollar’s position against its compatriots.
Economic Indicators and Their Influence
Recent economic data has given reason for optimism when it comes to Australia’s manufacturing industry. The Manufacturing Purchasing Managers’ Index (PMI) bounced up to 53.0, its highest level of growth in three years. The Trade and Transportation Index surged to 55.8, but highlighted a dramatic increase in export growth. This boom is being fueled by robust new orders across the United States, Europe, and the Asia-Pacific region.
“Manufacturing activity has returned to a pace of expansion not seen since September 2022,” – S&P Global.
The national resurgence has done the surprisingly the reverse — it’s pumped up the manufacturing sector with renewed optimism. As a consequence, this has pushed employment levels to levels unmatched since April. Increasingly positive economic indicators are likely to cement the myth of an unshakeable Australian economy. This, in turn, could strengthen demand for the AUD/USD pair.
While this report is focused on manufacturing, many service companies have experienced optimistic circumstances as well. The combination of intense demand and newfound consumer confidence has set them ablaze. In response, they’re increasing their marketing muscle and broadening their reach to potential customers.
“Service companies benefited from robust demand and increased confidence, prompting them to step up their promotional efforts and broaden their customer base,” – S&P Global.
Outlook for the Australian Dollar
Beyond these fundamentals, the near-term outlook for AUD/USD is likely to depend on the balance between perceived economic performance and market sentiment after a tumultuous few days. Yet, the bearish pressure now weighing on the currency pair seems to be gaining momentum as it struggles with major resistance levels. A close below these critical thresholds could catalyze breaks of even deeper declines in the days and weeks to come.
Market participants will be closely observing upcoming economic data releases, particularly those concerning manufacturing and services sectors, as they could shed additional light on Australia’s economic dynamics at this pivotal moment for AUD/USD.
Should the positive momentum from recent economic indicators continue into September, it may bolster the Australian dollar’s position against the USD. Weakness may feed the bearish technical posture and draw heightened scrutiny from jittery investors.