AUD/USD rises despite China’s property market concerns

Aussie dollar continues recovery

The Australian dollar (AUD/USD) finished higher last week at .6669 (+1.38%), continuing its recovery from a nine-month low. This was driven by improved risk appetite, hawkish signals from the Reserve Bank of Australia (RBA), and the latest job report showing the Australian labour market remains in good shape.

AUD/USD rally defies iron ore slump

The rally in AUD/USD was particularly notable as it occurred despite a 9% tumble in Iron Ore ore prices, Australia’s top export, due to growing concerns about Chinese demand. Iron ore, essential for steel manufacturing, is widely used in construction, including residential properties.

China’s property market woes intensified last week, with housing prices plunging 4.9% year-on-year in July, following a 4.5% decline the previous month. This marked the 13th consecutive month of falling prices and the fastest drop since June 2015, despite Beijing’s ongoing efforts to cushion the prolonged property slump.

Adding to the concerns, the Chairman of Baowu Steel, the world’s largest steel producer, accounting for 7% of global output, described the current conditions as a “harsh winter,” warning that it will be “longer, colder, and more challenging than we had anticipated.”

Key drivers for AUD/USD this week

While the situation in China continues to simmer, the key drivers of AUD/USD this week will likely be risk sentiment, the Jackson Hole Economic Symposium, and the minutes from the RBA’s August board meeting.

RBA meeting minutes

Date: Tuesday, 20 August at 11:30am AEST

At its August board meeting, the RBA kept its official cash interest rate on hold at 4.35%, as widely expected. In the accompanying statement, the RBA maintained a hawkish stance, noting that while inflation is easing, it remains well above the midpoint of the RBA’s 2-3% target range.

The RBA highlighted that quarterly underlying inflation has been above the midpoint of the target for 11 consecutive quarters and "has fallen very little over the past year."

Bullock’s hawkish tone contrasts with market expectations

Since the recent board meeting, RBA Governor Michele Bullock has continued to sound hawkish. Speaking to a parliamentary panel last week, she stated it would be "premature to be thinking about rate cuts." The RBA meeting minutes are expected to echo this hawkish sentiment.

However, the rates market presents a different outlook, anticipating a rate cut as the RBA’s next move, with 21 basis points (bp) of cuts priced in by year-end and three full 25 bp cuts expected by July 2025.

RBA cash rate chart

AUD/USD technical analysis

The rebound from the 0.6348 low extended last week, keeping the AUD/USD within a messy multi-month range, as seen on the weekly chart.

AUD/USD weekly chart

Last Tuesday’s break above the 200-day moving average at 0.6600c (now short-term support) suggests potential for the AUD/USD to extend its rally towards resistance at 0.6720. A break above this level could open the way for a test of multi-month trendline resistance at 0.6800c.

AUS/USD daily chart

• _{Source: TradingView. The figures stated are as of 19 August 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}