AUD Drops After China Data Shortfall

The Australian dollar fell against the US dollar when year–on–year retail sales in China came in at 2.5 percent, down from the predicted 7.0 percent and the previous month’s 8.5 percent. Industrial manufacturing increased by 5.3 percent in December, compared to an estimated 5.8 percent and a previous 6.4 percent increase. The release of today’s figures comes on the heels of dismal China manufacturing PMI statistics released a week ago. Because of the data, risk commodities in Asia are now trading at a lower level than they were previously, with major equities indexes in the red.

Since its implementation, the Chinese Communist Party has progressed to pursue its “shared prosperity” strategy, which has put pressure on the country’s commodities markets as various industries are compelled to adopt a different set of rules. Before the release of today’s statistics, Chinese gaming shares had already fallen as a result of additional announcements of increased scrutiny.

In addition, the COVID Delta variant threatens to impede economic movements in China. Various ports are still experiencing periods of closure and reopening, which has resulted in a considerable rise in the cost of import.

These delays in logistics have harmed the possibility for Australian iron ore shipments to China, as seen by the recent decline in the price of iron ore contracts. The connection between the Australian dollar and Iron ore has been shifting for some time, but it seemed to have come back amid current negative movements.

AUD IRON ORE CHART Source: Tradingview.com

Because the AUD/USD failed to bypass a negatively sloped trend–line and the 260–day simple moving average (SMA), the pair has fallen in value. Resistance is likely to be found at the new peak of 0.7478, the 260–day simple moving average (SMA), which is now at 0.7515, and the red sloping trend line, which is now at 0.7450.

The 21–day simple moving average (SMA) at 0.7311 was breached immediately before the report was released, and the market proceeded to fall after that. This might be a critical turning point to keep an eye on. On the negative side, strength may be found at the backward turning point of 0.7290 and the prior low of 0.7106, according to the most recent data.

Delta Variant Concern in Australia

The central bank opted to maintain its reduction efforts, reducing weekly bond-buying from A$5 billion to A$4 billion but prolonging them through February 2022. The decision was taken in direct reaction to the “slow economic expansion and increased complexities associated with the Delta outbreak,” officials claimed. Additionally, the remark implied that policymakers believe the present economic downturn is temporary. The benchmark rate of 0.10 percent was kept, as was the three-year bond yield target.

On the other hand, the dollar benefited from negative price action as the Coronavirus Delta strain spreads over the Northern Hemisphere, casting uncertainty on global economic progress. Additionally, investors were dragged down by the majority of central banks’ wait-and-see approach, even if their demand for stability was below average.