FX comment – Australian dollar outlook deteriorating

Australian dollar outlook deteriorating

Since the higher than expected second quarter inflation print on 23 July, the Australian dollar has failed to test the resistance level at 0.95. Prices have broken below the 0.9322 support level as the US dollar gained favour from an improving US economic outlook. After China’s manufacturing PMI in July surprised on the upside, the Australian dollar rallied higher from 0.9305 to 0.9317 before easing back to below 0.9300 at the time of writing. This is a sign of weakness with downside risk towards key support zone of around 0.92 in the short term. A less dovish Fed in the coming months coupled with a cautious stance from the Reserve Bank of Australia will be a strong catalyst for the Australian dollar to head lower towards this year’s low of 0.8660.