Australian Dollar extends losses due to sluggish Chinese economic activity

• AUD/USD registered significant declines on Tuesday towards 0.6615.
• Slowdown in Chinese economic activity is contributing to the decline in commodity prices.
• Stubbornly high inflation continues to prompt the RBA to delay rate cuts.

In Tuesday's trading session, the Australian Dollar (AUD) suffered further losses against the USD, with AUD/USD falling to 0.6615. This decline is largely attributed to sluggish Chinese economic activity which has resulted in a drop in commodity prices, illustrated by plunges in iron ore future prices to their lowest since early April.

Despite signs of weakness in the Australian economy, the RBA continues to resist rate cuts due to stubbornly high inflation. This could potentially limit any further decline in the AUD. The RBA maintains its position as one of the last central banks within the G10 countries likely to start cutting rates, a stance that might extend the AUD's gains.

Daily digest market movers: Aussie down due to economic concerns in China, markets await new clues on RBA’s stance

• Chinese economic concerns are weighing heavily on the Australian currency as China remains one of Australia's closest trading partners, and the drop in commodity prices is impacting the AUD.
• The CSI 300 stock index in China dropped dramatically by over 2% overnight, and the absence of specific measures in the recent third plenary session of China's central committee to address the country's structural economic disadvantages further added to these concerns.
• Additionally, the unexpected rate cut by the People's Bank of China (PBoC) earlier this week triggered worries about the health of the Chinese economy.
• However, the hawkish stance of the Reserve Bank of Australia (RBA) could limit the downside for the Aussie.
• The market now predicts around 50% likelihood of the RBA implementing a rate hike either in September or November. Australian Judo PMIs will be closely observed during the Asian trading session.

AUD/USD technical analysis: AUD/USD confirms correction following July's sharp gains.

While the AUD/USD pair has entered a correction phase after the sharp gains of early July, the main concern is that they have now fallen below the 20-day Simple Moving Average (SMA) but as long as the pair stays above the 100 and 200-day SMA, any downward adjustments could be considered 'corrective'. If it falls below these lines, that could be a sell signal. The range to watch for AUD/USD is 0.6630-0.6600, as buyers must maintain their orbit around this area to avoid further losses.