China is Key to Mr. Aussie’s Fate | AUD/USD Forex Trading Strategy

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China is Key to Mr. Aussie’s Fate | AUD/USD Forex Trading Strategy

10:10 AM (EST) Update

It’s Mr. Aussie day and we are following him down on the forex dance floor as he dances against Ms. USA. Today’s I’m gonna zoom out a bit and look at the AUD/USD monthly chart. Combing the technicals with upcoming Aussie bank monetary policy minutes as well as China and US economic outlook, we could get better understanding of our trading position on the pair.

Fundamental Analysis

Australia’s Economic Data 

The Land Down Under is expected to release a bunch of economic data beginning of this week including the CPI at 2:30 AM GMT on Wednesday. But more important that that is the details of the Reserve Bank of Australia (RBA) press conference that was held a couple of weeks ago.

We already know a lot about the outcome of that press conference. For example, policymakers decided to keep interest rates on hold at 2.00% while reiterating that further Aussie depreciation “seems both likely and necessary.”

But it’s still important to take a look at the meeting minutes after central bank officials have already published their policy statement. The transcript of their discussions usually contains more details on the economic factors that supported their final decision. In addition, these minutes also sometimes give the inside scoop on which policymakers are starting to shift their stance.It would be interesting to see if some officials actually called for a rate cut but were outvoted by other policymakers.

RBA Governor Stevens acknowledged the negative impact of falling commodity prices on their trade numbers and highlighted some weak spots in their economy but stopped short of lowering interest rates. Any signs that RBA policymakers are willing to lower rates further this year could lead to a forex selloff for Mr. Aussie while a more confident outlook could change our outlook to bullish.

We will hear more form Mr. Stevens on Wednesday at 4 AM GMT. If he remains dovish on his policies, we could expect the Aussie drops to keep on coming.

Chinese Troubles key to Mr. Aussie’s Fate

The free fall in China’s stock market beginning of July sent fresh vibes on the forex dance floor. Many analysts believe that China’s economy is key to whether Australian housing prices drop and that Chinese economy slow down can even drive Australia’s economy towards recession.

We may be in a phase where the official numbers are overstating China’s strength because an overall outlook suggests that China has an economy with challenges. It is doing surprisingly well given those challenges, so far, but we shouldn’t underestimate just how big those challenges are.

Mr. Aussie is among several pessimists that are loosing faith in Chinese government and as his major trading buddy, this can obviously have a negative effect on the Australian currency.

US Economy Growth & Cheap Oil

We’ve been talking about a Fed interest rate hike as soon as September for quite some time now, and if no massive surprise pops up (including poor economic data or a nuclear bomb launched from Iran) we should see it happening. The US economy has been showing considerable signs of growth and falling oil prices is starting to kick in its benefits to the economic health as well.

If Iran’s nuclear deal passes the congress despite all the opposition from the republicans, we could see even further drops in oil prices which would ultimately result in stronger US economy

More US economy growth means more strength for Ms.USA which would only mean more lows for the AUD/USD pair.

Technical Analysis

Looking at the AUD/USD monthly chart, the pair’s movements have been perfectly as expected sliding nicely along the lines of our bell-shape market cycle. The dancing pair broke below the important 0.76 level beginning of July which potentially opened doors for a brand new downtrend and put an end to a range that was going on since January 2015.  Remaining below the Ichimoku cloud with the RSI below the neutrality area, next stop could be lows of 2008 at 0.7150 and 0.64 in extension.

Market Sentiment: Bearish

Forex Trading idea

Invest Diva students should already be in a bearish position. If you missed my lessons, look for a correction around 0.74 and sell.

Alternatively, if the pair suddenly decides to go nuts and move above the Ichimoku cloud we could see new rallies back towards the 23% Fibonacci at 0.8025

Where to set your stops and limits:

Support Levels Turning Point Resistance Levels
0.7150 0.76 0.8025
0.64 0.78 0.82

*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.