The Australian dollar (AUD) fell against the US dollar (USD) this week, as the market failed to sustain a rally above the 0.65 level. The AUD/USD pair closed the week at 0.6445, down 0.49% from the previous week.
AUD/USD Struggles to Break Above 0.65 Resistance
The AUD/USD pair started the week on a positive note, as the market reacted to the upbeat economic data from Australia and China. The Australian GDP grew by 1.8% in the second quarter of 2023, beating the market expectation of 1.5%. The Chinese manufacturing PMI also came in better than expected at 51.2, indicating an expansion in the sector.
The pair reached a weekly high of 0.6523 on Tuesday, testing the 50-week EMA and the downtrend line that has been in place since June 2022. However, the pair faced strong selling pressure at this level, as the market turned its attention to the global growth concerns and the rising COVID-19 cases in some regions.
Global Growth Concerns Weigh on Aussie Dollar
The market sentiment deteriorated in the second half of the week, as the US and other major economies reported disappointing economic data and revised down their growth forecasts for 2023. The US ISM manufacturing PMI fell to 49.1 in August, indicating a contraction in the sector for the first time since January 2021. The US nonfarm payrolls also missed the market expectation by a wide margin, adding only 235,000 jobs in August, compared to the consensus of 750,000.
The US Federal Reserve Chair Jerome Powell said that the central bank is still on track to taper its asset purchases later this year, but he also acknowledged that the delta variant of COVID-19 poses a downside risk to the economic recovery. The market interpreted his speech as dovish, as he did not provide a clear timeline for tapering or rate hikes.
The Australian dollar, which is highly sensitive to the commodities markets and the global growth outlook, suffered from the risk-off mood and the weaker demand for raw materials. The iron ore prices, which account for about 20% of Australia’s export revenue, dropped to a nine-month low of $132 per tonne on Friday, as China imposed production cuts and environmental regulations on its steel industry.
AUD/USD Outlook for Next Week
The AUD/USD pair is likely to remain under pressure in the next week, as the market awaits more clues on the Fed’s policy stance and the impact of COVID-19 on the global economy. The key events to watch for next week are:
- The Reserve Bank of Australia (RBA) monetary policy meeting on Tuesday. The RBA is expected to keep its cash rate and its yield curve target unchanged at 0.1%, but it may also announce some adjustments to its bond-buying program in response to the recent lockdowns and virus outbreaks in Australia.
- The US CPI inflation data for August on Tuesday. The market expects the headline CPI to rise by 0.4% month-on-month and 5.3% year-on-year, while the core CPI is expected to increase by 0.3% month-on-month and 4.2% year-on-year. The inflation data will have a significant impact on the Fed’s policy outlook and the market’s expectations for rate hikes.
- The Australian employment data for August on Thursday. The market expects Australia to lose 90,000 jobs in August, as the lockdowns in New South Wales and Victoria took a toll on the labor market. The unemployment rate is expected to rise from 4.6% to 5%, while the participation rate is expected to drop from 66.2% to 65.8%.