- Authorities in China are considering a weaker currency.
- Chinese exports slowed in November.
- Market participants eagerly await the US inflation report.
The AUD/USD forecast suggests further weakness for the Aussie after reports that China is considering a weaker Yuan in its efforts to boost economic growth. At the same time, the Reserve Bank of Australia softened its tone on inflation, leading to a surge in rate cut expectations. Meanwhile, there was caution ahead of the US CPI print, which will shape the outlook for Fed rate cuts.
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The Aussie plunged on Tuesday, with the major catalysts coming from China. Authorities in the country are considering a weaker currency as further stimulus for the fragile economy. Recently, top officials announced plans to loosen monetary policy to revive the economy. A looser monetary policy comes with a weaker currency. China is intensifying its bid to spur economic growth after Trump’s threats to impose tariffs on Chinese goods. Such a move might weaken an already fragile economy.
Meanwhile, data on Tuesday revealed that Chinese exports slowed in November. At the same time, imports shrank. The weak data weighed on the Australian dollar since China is Australia’s biggest trading partner.
The Aussie has also fallen since the Reserve Bank of Australia meeting, where policymakers assumed a softer tone on inflation. The RBA is gaining confidence that inflation is dropping, which has raised the likelihood of a February rate cut to 62%.
Elsewhere, market participants eagerly await the US inflation report for more clues on Fed rate cuts. Forecasts show a monthly increase of 0.3% and an annual increase of 2.7%.
AUD/USD key events today
- US core CPI m/m
- US CPI m/m
- US CPI y/y
AUD/USD technical forecast: Bears pounce 0.6375
On the technical side, the AUD/USD price has broken below the 0.6375 support level after a surge in bearish momentum. As a result, it has fallen well below the 30-SMA, showing a strong bearish lead. At the same time, the RSI is approaching the oversold region, indicating increased enthusiasm to push the price lower.
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Meanwhile, the breakout move has made a lower low, showing a continuation of the downtrend. Initially, bulls failed to break above the 30-SMA. As a result, the price made a false breakout pattern that later led to a sharp drop. If the downtrend continues, AUD/USD will soon breach the 0.6325 level.
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