Aussie Pressured Near 0.7130 as Stronger USD Dominates

Key Moments

Macro Drivers and Market Sentiment

The AUD/USD pair is unable to extend the previous session’s modest recovery from the 0.7100 area, which marked an over three-week low, and continues to trade with a bearish tone for a second consecutive day on Tuesday. During the Asian session, the pair shows little reaction to Chinese macroeconomic releases and remains subdued around the 0.7130 level.

According to China’s National Bureau of Statistics (NBS), Retail Sales increased 0.4% year-on-year in August, below expectations for a 0.8% rise and down from the 0.6% gain recorded in the prior month. At the same time, Fixed Asset Investment was reported at -7.2% year-to-date in August, compared with -6.7% in July. In contrast, Industrial Production grew 5.2% year-on-year in August, up from 4.5% in July and exceeding consensus forecasts of 4.8%.

Despite this mix of softer consumption and investment data alongside stronger industrial output, the releases do not generate meaningful support for the Australian Dollar, which is often viewed as a proxy for Chinese economic prospects. Instead, the price action in AUD/USD is primarily dictated by the broader strength of the US Dollar.

US Dollar Strength and Central Bank Expectations

The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, holds close to the two-week peak reached on Monday. This firm USD tone continues to pressure AUD/USD ahead of the start of the two-day Federal Open Market Committee (FOMC) meeting.

Market participants increasingly expect the US Federal Reserve to raise interest rates on Wednesday. These expectations, combined with ongoing concerns about inflation linked to oil prices, help keep US bond yields elevated. In addition, geopolitical tensions associated with the Middle East situation contribute to demand for the safe-haven US Dollar.

On the other side, the Australian Dollar finds some underlying support from expectations that the Reserve Bank of Australia (RBA) will deliver another rate increase later this month. This prospect may limit the extent of any further near-term downside in AUD/USD, even as the pair remains under pressure.

Technical Picture for AUD/USD

On the daily chart, AUD/USD is trading just below the 23.6% Fibonacci retracement level at 0.7147, which serves as the nearest upside barrier. Despite the current pullback, the pair maintains a constructive short-term stance while holding above the 50-day Simple Moving Average (SMA) located at 0.7074.

If selling resumes and spot breaks lower, the 50.0% Fibonacci retracement at 0.7049 is seen as the next significant support zone.

On the upside, a clear move above the 23.6% retracement at 0.7147 would expose the recent swing high in the 0.7234 region, where more substantial resistance is anticipated to emerge.