The Australian dollar continues to sell off this morning, although 0.78 is an area of heavy resistance for AUD/USD. So far, the currency has been selling off thanks to weakness in the Chinese yuan (China is the country's biggest trading partner) and in industrial commodity prices. The Aussie has been particularly weak against the US dollar, which has been rebounding since the third week of September.
AUD/USD is currently trading above 0.78, where it has found some support. The pair was last trading at similar levels in mid-August. The Aussie has lost some ground against the euro today, with EUR/AUD rising up to just above 1.50. Finally, the Australian dollar has sold off against the pound, with GBP/AUD now trading above 1.6980.
Yesterday, we saw fairly strong manufacturing survey data (54.2) and strong inflation figures as well (2.5% YoY). Today's Reserve Bank of Australia interest rate decision and statement was a non-event, as we covered in our preview. Finally on Thursday, we'll see retail sales, trade balance and construction survey data.
From a medium term perspective, we are downgrading the Aussie to bearish on continuing weakness. The Aussie has weakened in the last three weeks of September, and continues to sell off. The currency is weakening for a variety of reasons including the limited possibility of future interest rate hikes and weakness in China's economy. Looking at a weekly chart, the Aussie has re-entered normal trading conditions having been overbought for most of September. Our analysis is based on various technical indicators.