AUDUSD may be in for a quick bounce, as price is already stalling at a long-term support zone visible on this daily chart. Price is finding support at the previous year lows of .8700, with stochastic giving the oversold signal.
A bounce could take price up to the nearby area of interest around the .8800 major psychological level. A higher rally could lead to a test of the .9000 major psychological resistance if buying momentum is sustained.
However, fundamentals and risk sentiment don’t appear to be favoring the Australian dollar at the moment. Recent geopolitical risk in Hong Kong could keep weighing on AUDUSD as this also affects China, Australia’s largest trade partner. Apart from that, higher-yielding commodity currencies typically lose ground when risk is off.
The latest Chinese HSBC manufacturing PMI for September was downgraded from 50.5 to 50.2, indicating that industry expansion was weaker than initially reported. This could lead to more losses for AUDUSD and perhaps a downside break from .8700. In this case, the pair might be in for more losses as the dollar continues to advance.
Data from the US include the Chicago PMI and CB consumer confidence today, both of which are set to print declines. However, stronger than expected data might lead to an extended dollar rally. Profit-taking at the end of this month and quarter might also come into play, leading to short-term losses for the US dollar.
A selloff for AUDUSD could take price down to .8500 or lower, with sentiment strongly favoring the US dollar as the Fed moves closer to implementing its exit strategy and hiking interest rates. The RBA, on the other hand, remains concerned about a housing bubble and isn’t likely to adjust monetary policy anytime soon.
With that, the path of least resistance for AUDUSD is to the downside, spurred by both fundamental and market risk factors.
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