Global risk sentiment is deteriorating on Monday due to rising concerns about worsening economic conditions in China. Concerns intensified after China's Country Garden - one of the largest developers - warned of a massive loss of $7.6 billion in the first half of 2023. That, coupled with geopolitical risks, is tempering investors' appetite for riskier assets.
War conflict supports USD growth
In fact, a Russian warship fired warning shots at a cargo ship it claimed was heading for Ukraine in the southwestern Black Sea on Sunday. It is worth remembering that Russia in July pulled out of a UN-brokered deal that allowed Ukraine to move grain across the Black Sea and warned that a ship bound for Ukraine would be treated as potentially carrying weapons. This, coupled with expectations that the Federal Reserve (Fed) will keep interest rates higher for longer, is strengthening the safe-haven US Dollar (USD) and putting pressure on the AUD/USD pair.
Possibility of further rate increases
The markets seem convinced that the US central bank will stick to its hawkish stance to curb inflation, and is considering the possibility of another rate hike before the end of this year. The bets were reaffirmed by US macro data released on Friday, which showed that PPI rose slightly more than expected in July. Against the backdrop of modest consumer price growth in July, the data suggested that the battle to bring inflation back to the Fed's 2% target is far from won. This in turn leaves the door open for a 25bp rise in November.
Will there be a further decline in the pair?
The AUD/USD pair looks poised to weaken below the 0.6455-0.6450 area and eventually fall to the 0.6400 round figure. Some subsequent selling will reveal further relevant support near the 0.6365-0.6360 band and the 0.6300 boundary, which, if broken, will be seen as a new trigger for bearish traders and set the stage for further downside.
