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Summary: Concerns over the weak domestic economy and China's major trading partner, China, have put the AUDUSD at a disadvantage for the second consecutive day. Meanwhile, ahead of the July Fed meeting, the consolidation phase following a sharp decline in the U.S. dollar has exerted heavy pressure on the Australian dollar.

Fundamentals

China's economy grew by 6.3% in the second quarter, lower than the market's expectation of 7.3% but higher than the 4.5% growth rate in the first quarter. The latest data shows that China's economic growth remains sluggish, primarily due to the distortion caused by the low base effect from last year when cities like Shanghai were under lockdown because of COVID-19. After seasonal adjustments, the Chinese economy grew by a mere 0.8%, a significant slowdown from the 2.2% growth in the first quarter.

The market has mixed reactions to China's economic growth data. On the one hand, weak growth implies that the government and central bank will intensify efforts to further loosen financial conditions and pave the way for a faster recovery. On the other hand, the effectiveness of the supportive policies implemented so far has been limited. Challenges such as a sluggish real estate market, deflation risks, and a decline in exports are difficult to reverse.

Furthermore, China's youth unemployment rate reached a historic high for the third consecutive month in June, surpassing 20%. The situation may worsen as fresh graduates enter the job market.

According to spokesperson Fu Linghui of the National Bureau of Statistics, the unemployment rate for the age group of 16 to 24 was 21.3% last month, the highest recorded data since 2018. Fu stated that the figure for July may be even higher. The rise in unemployment pressure is attributed to young people completing their education and seeking employment. It is estimated that nearly 12 million students will graduate from universities this year, reaching a historical peak.

The market's response to this data is currently not enthusiastic. The rapid decline in the AUDUSD reflects the current market's reaction to the prospects of the Chinese economy.

Meanwhile, following the release of U.S. inflation data for June, U.S. Treasuries rose, and the U.S. dollar plummeted. The market views this reaction as possibly overdone. Prior to the July Fed meeting, the consolidation phase following a sharp decline in the U.S. dollar may continue to exert pressure on the Australian dollar.

Technical Analysis

Last week, the AUDUSD rose sharply, almost hitting higher oscillation highs amidst the USD's selloff.

However, as the downward momentum of the U.S. dollar slowed or entered a consolidation phase, the Australian dollar experienced a significant retracement against all major U.S. dollar pairs, forming a bearish crossover and a downward trend in the 4-hour chart. It is anticipated that this currency pair will further retreat.

Based on the current downward trend, the currency pair may test the range of 0.6700-0.6750. Investors can take advantage of the current bearish adjustment to find opportunities to enter long positions for the currency pair, targeting the previous selling point (horizontal line). In terms of strategy, buying the dips is recommended.

Trading Recommendations

Trading Direction: Long

Entry Price: 0.6730

Target Price: 0.6976

Stop Loss: 0.6530

Valid Until: 2023-07-31 23:55:00

Support: 0.6720, 0.6700, 0.6597

Resistance: 0.6835, 0.6899, 0.6936