Ella 
In the Asian market on Tuesday, AUD/USD struggled to maintain the slight rebound from around 0.6400 (the lowest level since November 2022) the day before yesterday and remained lower. AUD/USD is currently trading around 0.6485, almost flat throughout the day and seems vulnerable to extending the downward trajectory it has been on for the past month-plus.
Worries over China’s deteriorating economic outlook continue to weigh on the Aussie, despite a surprise rate cut by the People’s Bank of China (PBoC). In fact, the PBOC lowered the benchmark medium-term lending facility (MLF) rate to 2.5% from 2.65% and the reverse repurchase rate to 1.8% from 1.9%. However, weak Chinese economic data released during the day (showing that China’s total retail sales of consumer goods and industrial production grew less than expected in July) made the Chinese economy even worse.
Meanwhile, the minutes of the RBA’s August 2023 policy meeting showed that the current default policy stance is to keep rates steady. Policymakers agreed that further tightening may be needed, with the RBA maintaining a “clear path” for the outlook towards its inflation target despite the current cash rate at 4.1 per cent. AUD/USD has limited upside as the greenback maintains an underlying bullish bias.
Last week’s U.S. consumer and producer price index reports suggested that the battle to bring inflation back to the Fed’s 2 percent target is far from won. That should allow the Federal Reserve (Fed) to stick to its hawkish stance and keep interest rates higher for longer, which remains supportive for rising U.S. bond yields and continues to support the dollar. This further weighed on the AUD/USD pair and suggests that the least resistance remains to the downside.
Market participants will now turn their attention to the U.S. economy, with a focus on monthly retail sales and the Empire State manufacturing index to be released later in the North American session. The data, along with volatility in U.S. bond yields and broadening risk sentiment, will influence USD price dynamics and provide some clear impetus to the AUD/USD pair. At the same time, the aforementioned fundamental backdrop appears firmly in favor of the bears and supports the prospect of further AUD/USD losses.
