More Downside as China Woes Mount

The Australian economy has done well in the past decades, helped by the soaring demand from China. 

• Sell the AUD/USD pair and set a take-profit at 0.6350.
• Add a stop-loss at 0.6460.
• Timeline: 1-2 days.

• Set a buy-stop at 0.6430 and a take-profit at 0.6530.
• Add a stop-loss at 0.6350.

The Australian dollar has been stung by the ongoing meltdown in China, the second-biggest economy in the world. After peaking at 0.6890 in July, the AUD/USD pair has slumped to 0.6400, the lowest level since November last year.

The Australian economy has done well in the past decades, helped by the soaring demand from China. To date, Australia sells most of its commodities like coal, iron ore, and copper to the country.

Now, there are rising concerns that the great China engine is slowing down. Real estate, the biggest sector in the country is on the verge of collapse. Evergrande, the giant Chinese company, filed for bankruptcy in the United States.

Country Garden another giant company with over $200 billion in liabilities, is also about to enter restructuring. Its sales have slipped, losses have jumped, and the company has failed to pay some of its bonds. The effect of its collapse will have ripple effects in the economy.

Therefore, there are concerns about the impact of this slowdown on Australia’s economy in the short and longer term.

Internally, there are also signs that Australia is slowing. Data published on Thursday showed that the country’s unemployment rate rose to 3.7% in July, higher than the median estimate of 3.5%. This happened as the employment change fell by 14.6k during the month while full-time employment fell by 39.3k.

Looking ahead, there will be no major economic data from the US and Australia on Monday. Therefore, the focus will be on the upcoming Jackson Hole Symposium, where central bank officials will deliberate on the next actions.

The AUD to USD exchange rate has been in a strong downward trend in the past few weeks. This sell-off started when the pair formed a double-top pattern at 0.6890. It has moved below the neckline of this pattern at 0.6593.

At the same time, the pair has also dropped below the support at 0.6458 (May 31st low). It has also dropped below the 50-period moving average while the Relative Strength Index (RSI) remains between the oversold and neutral points.

Therefore, the pair will likely continue falling as sellers target 0.6350. On the upper side, the key level to focus on will be 0.6458.

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