Aussie Dollar forms a bottom

The combination of in line inflation data released by the Australian government Wednesday’s and worse  than expected Chinese purchasing managers data failed to buoy the AUD/USD, which is attempting to form a bottom.

Australia’s second quarter consumer price index climbed 2.4% year over year, which was close to expectations. Core inflation accelerated to 0.5% quarter over quarter from 0.3%. Some items were boosted by policy and tax changes. The increase in inflation is within the range of expectations which will allow the Reserve Bank of Australia to ease, which has kept a lid on any increases in the AUD/USD.

Wednesday’s release of private purchasing manager’s data in China by HSBC showed that activity declined during July to 47.7 which is a new 12-month low.  Expectations were for a print of 48.7.  The official print from the government declined to 50.1 in June.  The new orders sub-index fell to its lowest level in 11 months, and stayed below 50, the boom bust level, for a third straight month. Output declined to 10-month low.

Australia is an export led growth country that relies on commodity exports to China to stimulate GDP.  The decline in demand has hampered growth, which in turn has led the RBA to cut rates.  The reduction in rates has pushed the yield differential in favor of the US greenback, eroding the value of the AUD/USD.

The currency pair is attempting to form a bottom near the 90 cent level.  Price action moved above a downward sloping trend line, which puts resistance near the June highs at 0.9750.  Support is seen near the 10-day moving average near 0.9190.  Momentum is strong with the MACD (moving average convergence divergence) index printing in positive territory with an upward trajectory.  The RSI (relative strength index) is printing near 48 in the middle of the neutral range.