AUD/USD slides sharply back below 0.7100 on risk aversion

• AUD/USD plunges below its 100-DMA, threatening to negate an inverse head-and-shoulders, down more than 1%.
• China’s worst-than-expected data and US NY Fed Empire State report deteriorated investors’ mood.
• The Australia docket will unveil August RBA minutes, inflation, and employment data during the week.

The AUD/USD tumbles amidst a risk-off impulse on Monday, spurred by China’s economic data adding to the deceleration in its economic growth, while the US NY Fed Empire State Manufacturing Index plunged. Therefore, risk-sensitive currencies like the AUD, NZD, and CAD are down during the day.

The AUD/USD is trading at 0.7036, down 1.20%, after exchanging hands near last week’s highs at 0.7125, but worries about China’s economy and the PBoC surprise rate cut to its 1-year MLF weighed on the AUD/USD, with Australia being one of China’s largest trader partners. Hence, the AUD/USD dropped to a daily low at 0.7011 before stabilizing at current levels.

In the meantime, the US NY Fed Empire State Manufacturing for August plummeted to -31.3 from 5 due to orders and shipments declining. Even though it’s a dismal reading, sources cited by Bloomberg said: “that industries extrapolated orders from the Covid period and they ordered too much stuff.” Despite numbers of the previously mentioned report and last week’s US inflation figures cooling down, it might not deter the Federal Reserve from continuing hiking.

Meanwhile, during the Asian session, the Australian economic docket had nothing to report, but its largest trading partner did. China featured Industrial Production slowing from 4.3% expected to 3.8% YoY, while Retail Sales increased to 2.7% YoY, less than 4.9% estimates. In reaction, the People’s Bank of China (PBoC) reduced its 1-year MLF by ten basis points to 2.75%. Therefore, sentiment deterioration was a headwind for the AUD/USD.

What to watch

The Australian economic calendar will report the Reserve Bank of Australia’s (RBA) August minutes, inflation figures, Q2 wages, and employment figures during the week. On the US front, the US Federal Reserve minutes, housing data, Initial Jobless Claims,  the CB leading index, and Fed speak.

AUD/USD Key Technical Levels