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Australian Dollar Reversal Warnings Grow as AUD/USD Falls on Disappointing Chinese Data


Australian Dollar, AUD/USD, Chinese Data, Rising Wedge – Asia Pacific Market Open

  • Australian Dollar falls on disappointing Chinese data
  • Slowing China has downside consequences for Australia
  • AUD/USD bearish reversal warnings continue growing

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How to Trade AUD/USD

The Australian Dollar weakened slightly in the wake of a disappointing round of key Chinese economic figures. Industrial production rose just 2.2% y/y in November versus the 3.5% estimate. This represents a slowdown from 5.0% in October.

Meanwhile, retail sales shrank 5.9% y/y for the same period, much worse than the -4.0% consensus. This also represents an acceleration from the -0.5% slump in October. This is as the surveyed jobless rate climbed to 5.7% versus the 5.6% estimate, rising from 5.5% prior.

China is Australia’s largest trading partner. As such, economic outcomes in the former often imply knock-on impacts for the latter. In this case, a slowing China could hurt Australia’s output down the road, perhaps inspiring the Reserve Bank of Australia to adjust its policy course.

Moreover, China is an outward-facing economy that remains vulnerable in the wake of slowing global growth triggered by the fastest tightening by central banks in decades. That might offset some of the anticipated boosts to Covid restrictions being eased in recent weeks.

Now, the sentiment-linked Australian Dollar awaits the European Central Bank and Bank of England December interest rate announcements. All eyes are on the ECB’s approach to quantitative tightening and economic updates from the BoE. The risk of volatility after the Fed is not quite over yet.

AUD/USD Market Reaction to China Data

Australian Dollar Technical Analysis

On the daily chart, the Australian Dollar appears to be trading within a bearish Rising Wedge chart formation. Since prices remain within the boundaries of the pattern, the trend may remain upward. But, a downside breakout risks opening the door to resuming the broader downtrend from earlier this year. Meanwhile, negative RSI divergence shows that upside momentum is fading. That can at times precede a turn lower. This is as the 200-day Simple Moving Average remains in play as key resistance.

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AUD/USD Daily Chart

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