This is a tough one.
AUD/USD broke support earlier today and touched the lowest since November 2022. The decline today is 77 pips and comes after the Reserve Bank of Australia left rates unchanged. That was widely expected (I thought) but not as much I thought as Aussie selling hit afterwards.
Obviously, Chinese growth worries are weighing on AUD but some optimism is also creeping in and data is showing that Chinese steel mills are running at high capacity.
The USD side is where it gets even tougher. The dollar is strong today but it's coming on a puzzling selloff in bonds. BMO thinks that corporate rate lock selling and flows are driving bonds, not changing fundamentals.
The conspicuous absence of economic data of note this week (save ISM services tomorrow) implies that the price action is occurring as a function of flow-specific causes. It’s certainly not wasted on us that September is expected to be a heavy corporate issuance month; if for no other reason than the slowing of activity during the latter half of August has left issuer backlogs. Rate-locking will eventually give way to covering hedges; the most relevant uncertainty is whether any meaningful technical levels will be breached in the interim.
At some point the dollar selling reverses but we're at the point where a level in AUD did break. So what do we do with it? The obvious target is 0.6200 but we will need a true break to get there.
