Australian Dollar Touches Session Lows on China Data Miss. Will AUD/USD Fall More?

Chinese Retail Sales, Industrial Production, AUD/USD – Talking Points

• The Australian Dollar was hit immediately after weak Chinese data
• Both retail sales and industrial production disappointed expectations
• Outlook for China dependent on growth amid Delta. AUD/USD lower?

AUD/USD moved lower as Chinese year-on-year retail sales came in at 2.5% versus the 7.0% forecast and last month’s 8.5%. Industrial production printed at 5.3% against an expected 5.8% and prior 6.4%. Today’s numbers come against the backdrop of disappointing China PMI data from a fortnight ago. The data has added to already negative sentiment for risk assets in Asia with most equity indices trading in the red.

The Chinese Communist Party continues to implement its ‘shared prosperity’ policy which has weighed on Chinese equity markets as many sectors are forced to re-adjust to a new set of regulations. Prior to the data today, Chinese gaming stocks had already moved lower on more announcements of tighter scrutiny.

The Covid Delta variant also continues to interrupt economic activity in China. Several ports continue to go through episodes of closing and re-opening which has seen the cost of shipping increase significantly.

These bottlenecks in logistics have undermined the prospects for Australian iron ore exports to China with futures prices moving lower of late. Although the correlation between AUD/USD and iron ore have been drifting, they appear to have re-aligned following recent downward moves.

The AUD/USD has moved lower since failing to break through a downward sloping trendline and the 260-day simple moving average (SMA). Resistance might be seen at this recent high of 0.7478, the 260-day SMA currently at 0.7515 and the negative sloping trendline currently at 0.7450.

The 21-day SMA at 0.7311 was broken just before the data and continued lower after. This may now be a pivot point to watch. On the downside, support might be at the reverse pivot point of 0.7290 and the previous low of 0.7106.

AUD/USD and IRON ORE PRICES

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter