The AUD/USD pair saw a significant drop, showing a strongly pronounced downtrend. Last week, buyers of AUD/USD reached a six-month price high (0.6874), but then the pair suddenly changed direction and is currently approaching the 66-figure threshold.
In general, the AUD/USD pair mirrors the trajectory of the US Dollar Index. At the end of the year, the greenback sharply weakened, while at the beginning of 2024, it strengthened quite abruptly. In turn, the aussie plays the role of the "follower," as it lacks its own arguments to mount a counterattack. Moreover, the information landscape has been unfavorable for the Australian currency lately, as many fundamental factors contribute to the development of a downward movement.
First of all, there is concern about the dynamics of the Australian economy. The country's GDP barely grew in the third quarter of 2023 (+0.2% QoQ) – export volume declined (by 0.7%), and households are reluctant to spend money. Consumer spending in July-September 2023 remained almost unchanged, and the household savings rate sharply decreased to 1.1% (the lowest value since the 4th quarter of 2007). Creditor debt has increased by almost 30%.
Inflation does not work in favor of the aussie. In annual terms, the Consumer Price Index shows a consistent downward trend (three consecutive quarters). In monthly terms, the CPI has dropped to 4.9% after a two-month increase (reaching 5.6%). However, these are somewhat outdated data (for October) – more recent figures (for November) will be published next Wednesday, January 10. According to preliminary forecasts, the indicator will decrease again, to 4.5%. Such a result will mount pressure on the aussie.
The minutes of the Reserve Bank of Australia's December meeting also conveyed somewhat worrisome signals (for the Australian dollar). The document stated that "there had been encouraging signs of progress towards the board's objectives,". In addition, members of the RBA noted that consumption growth is "quite weak," and many "households are experiencing a painful squeeze".
The Australian dollar has also been pressured by China, which is Australia's largest trading partner. Manufacturing activity in China continues to slow down. The Manufacturing PMI, published on December 31, fell to 49.0 points (against a forecast of 49.6), while it stood at 49.4 in November. The indicator is below the 50-point mark – indicating contraction – for the third consecutive month. The key factor behind the decline is weak external demand: the index of new export orders in December was 45.8 points (this component has been decreasing for the ninth consecutive month). The non-manufacturing sector PMI in China also entered the "red," hitting 50.4 points (against a forecast of growth to 51.1). By the way, in his New Year's address, China's leader Xi Jinping acknowledged that the country's economy is facing difficulties. However, this is far from news – throughout the past year, there was a slump in the real estate market and a record-high youth unemployment rate in China. The Manufacturing PMI simply reminded traders of the slowdown in the world's largest economy.
A Bloomberg report also exerted additional pressure on the aussie. Journalists at the news agency reviewed internal documents from the RBA, according to which the central bank acknowledges the negative impact of high interest rates on households and businesses. RBA's research shows that many residents of the country are either buying fewer goods or purchasing cheaper items due to the rising cost of the consumer basket. In addition, the central bank notes another troubling sign – an increase in the number of people seeking assistance from social organizations for food support.
All of the above-mentioned fundamental factors are putting pressure on the Australian dollar.
In turn, the US dollar is strengthening its position amid risk aversion and rising Treasury yields. The ISM manufacturing index, which entered the "green zone", also supported the greenback. The indicator, while still indicating contraction, rose to 47.4 points.
However, the US labor market data painted a negative picture. It was revealed that the number of job openings as of the last business day of November stood at 8.79 million. This marks the third consecutive monthly decline and is a worrisome sign ahead of the Nonfarm Payrolls report, which will be released this Friday.
Nevertheless, the bearish sentiment still prevails. The pair is approaching the support level of 0.6700 (the middle line of the Bollinger Bands indicator, coinciding with the Kijun-sen line on the daily chart). Breaking this target will pave the way for the pair to reach the next bearish target at 0.6600 (the Tenkan-sen line, coinciding with the Kijun-sen line on the weekly chart).
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