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Daily brief: Australian dollar falls alongside copper and iron ore ahead of RBA minutes



The RBA’s August policy minutes in focus ahead of wage data due out later this week and AUD/USD approaches the 0.7000 psychological level after a big overnight drop.

Source: Bloomberg

Tuesday’s Asia-Pacific outlook

A stronger US dollar weighed on the Australian dollar after poor US economic data added to recession fears. The New York Fed’s Empire State Manufacturing Index for August fell to -31.3 on weak new orders and shipments. US stocks opened lower but trimmed losses throughout the Wall Street trading session. The benchmark S&P 500 ended 0.40% higher as Fed pivot bets strengthened some.

On Monday, China reported weaker-than-expected retail sales and industrial production data for July. China’s central bank, the People’s Bank of China (PBOC), unexpectedly lowered its 1-year medium-term lending facility rate by 10 basis points. The surprise move sparked demand for Chinese government bonds, sending China’s 10-year yield to its lowest level since January. The yuan weakened more than 1% against the USD.

Crude oil prices fell in New York trading despite China’s signal of support for its economy. WTI crude and Brent crude prices slipped nearly 3%. Copper and iron ore prices also came under pressure, which weighed on the commodity-sensitive Australian dollar. In Europe, natural gas prices surged as the Rhine River saw its water level drop further. German 1-year ahead energy prices hit another fresh record high.

The Reserve Bank of Australia (RBA) will release its August policy minutes today, which may provide markets with additional insight into the central bank’s thinking. Australia’s second-quarter wage price index is expected to climb from 2.4% y/y to 2.7% y/y later this week. A larger-than-expected increase would likely fuel some hawkish RBA bets to the Aussie dollar’s benefit. Melbourne-based BHP Group’s second-half earnings are also due this morning.

Notable events for August 16:

  • Philippines – Retail Price Index (May)
  • Japan – Tertiary Industry Index MoM (June)
  • India – WPI Food YoY (July)

AUD/USD technical outlook

AUD/USD pierced below its 100-day Simple Moving Average and prices look poised to test the 0.7000 psychological level at the current calculus. The 12-day Exponential Moving Average (pink line) offered some intraday support shortly above the psych level. A break below those levels would threaten to drag prices negative for the month. The Relative Strength Index (RSI) is tracking lower towards its centerline.

AUD/USD daily chart

Source: TradingView

Thomas Westwater | Analyst, DailyFX, New York City
16 August 2022

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