Australian Dollar finds floor after China property default sparks sell-off

• Australian Dollar finds a floor in the lower 0.65s after selling off on fears of a credit crunch in the Chinese property sector.
• Hawkish commentary from the Governor of the RBA, Philip Lowe, helps staunch the bleeding from China property sector woes. 
• US factory gate inflation comes out higher than expected, supporting the US Dollar. 

The Australian Dollar (AUD) finds a floor against the US Dollar (USD) after selling off during the Asian session on fears of a credit crunch in the Chinese property sector triggered by the default of a private property developer, Country Garden.  

The Australian Dollar comes under pressure again, however, following the release of higher-than-expected US factory gate inflation with the release of Producer Price Index data (PPI) for July.

AUD/USD trades in the 0.65s at the start of the US session.  

Australian Dollar news and market movers 

• The Australian Dollar reverses the substantial gains made on Thursday as a result of positive market sentiment and a weaker US Dollar, caused by the release of lower-than-expected US inflation data for July. 
• Fresh China economy woes may have contributed to the Australian Dollar’s turn lower. 
• During Friday’s Asian session, the news surfaced that Chinese private property developer Country Garden defaulted on its debt, spreading fear of a meltdown in the country’s fragile property sector. 
• Given Australia’s reliance on exporting raw materials such as Iron Ore for Chinese building projects, the news weighed heavily on the Australian Dollar.
• The Aussie found support during the Asian session after comments from Governor Lowe that the market interpreted as hawkish and, therefore, positive for AUD. Lowe reiterated the Reserve Bank of Australia’s (RBA) commitment to fighting inflation and did not rule out the need for further rate hikes. 
• Headline PPI shows a 0.8% rise in July YoY versus the 0.7% forecast and 0.3% MoM versus the 0.2% anticipated. 
• Core PPI shows a 2.4% rise versus the 2.3% YoY forecast, and 0.3% against the 0.2% estimated on a MoM basis. 

Australian Dollar technical analysis 

AUD/USD is in a sideways trend on both the long and medium-term charts. The February high at 0.7158 is a key hurdle, which if vaulted, will give the longer-term charts a more bullish tone. 

The 0.6458 low established in June is a key level for bears. If this is breached decisively, it would color the charts more bearish. Price is currently closer to this key low. 

Australian Dollar vs US Dollar: Weekly Chart

Price has now broken cleanly below the confluence of moving averages (MA) close to 0.6700, made up of most of the major SMAs – the 50-week, 50-day and 100-day. The breaching of this key support and resistance level was a bearish sign. 

Australian Dollar vs US Dollar: Daily Chart

AUD/USD has broken below the 0.6600 June lows, and a continuation down to the key May lows at 0.6460, is quite possible. A decisive break below them would open the way for a move down to 0.6170 and the 2022 lows. 

Because the pair is in a sideways trend overall, it is unpredictable, and the probabilities do not favor either bears or bulls overall – nor is the Relative Strength Index (RSI) providing much insight on either timeframe. 

For bulls, a decisive break back above the skein of MAs in the upper 0.66s and then through 0.6750 would be a prerequisite for a more optimistic outlook. 

In technical terms, a ‘decisive break’ consists of a long daily candlestick, which pierces cleanly above or below the critical level in question and then closes near to the high or low of the day. It can also mean three up or down days in a row that break cleanly above or below the level, with the final day closing near its high or low and a decent distance away from the level.