Australian Dollar pares heavy intraday losses; AUD/USD rebounds from 0.6400 neighborhood

• The Australian Dollar attracts heavy selling following the release of weaker domestic GDP print.
• China’s economic woes and US-China trade war fears also undermine the China-proxy Aussie.
• The USD bulls seem reluctant ahead of Powell’s speech and offer support to the AUD/USD pair.

The Australian Dollar (AUD) trims a part of its heavy intraday losses and assists the AUD/USD pair to rebound around 35-40 pips from the 0.6400 neighborhood or the lowest level since August 5. Any meaningful recovery, however, seems elusive in the wake of rising bets for an early interest rate cut by the Reserve Bank of Australia (RBA), bolstered by softer domestic growth figures released earlier this Wednesday. 

Apart from this, concerns about fragile economic recovery in China, US President-elect Donald Trump’s impending tariffs and trade war fears should contribute to capping the China-proxy Aussie. Traders might also opt to wait for cues about the future rate-cut path from Federal Reserve (Fed) Chair Jerome Powell’s speech. The outlook will drive the US Dollar (USD) demand and provide a fresh impetus to the AUD/USD. 

Australian Dollar remains vulnerable following disappointing Q3 GDP print

• The Australian Bureau of Statistics (ABS) reported this Wednesday that the economy expanded by 0.3% in the third quarter and by 0.8% on a yearly basis, missing estimates for a reading of 0.4% and 1.1%, respectively. 
• Commenting on the critical economic report, Australia’s Treasurer Jim Chalmers said that the national accounts show positive but weak GDP growth and that it is encouraging to see growth in real disposable incomes.
• The markets were quick to react and fully priced in a rate cut by the Reserve Bank of Australia (RBA) next April. Moreover, Refinitiv interest rate probabilities indicate a 35 basis point easing for May, up from 28 bps before. 
• China’s Caixin Services PMI unexpectedly fell to 51.5  in November from 52.0, fueling worries about a fragile recovery in the world’s second-largest economy and further undermining the China-proxy Australian Dollar. 
• The US announced a new set of export controls to curb China’s technological advancements and restricting the sale of crucial semiconductor-manufacturing equipment and high-bandwidth computer memory to the country.
• This comes after US President-elect Donald Trump threatened a 100% tariff on BRICS nations – Brazil, Russia, India, China, and South Africa – if they undermine the US Dollar by creating or backing alternative currencies. 
• The US Job Openings and Labor Turnover Survey (JOLTS) data published on Tuesday showed that the number of job openings on the last business day of October stood at 7.74 million, up from 7.37 million in the prior month.
• The data eases fears of a significant slowdown in the US labor market and might force the Federal Reserve to take a cautious stance on cutting rates amid expectations that Trump’s expansionary policies will boost inflation. 
• The US Treasury bond yields shot up in reaction to the upbeat data, though failed to impress the US Dollar bulls as the markets are still pricing in a greater chance that the Fed will lower borrowing costs again in December. 
• San Francisco Fed President Mary Daly said that the US economy is in a really good place, while the labor market is in balance and is not a source of inflation. Daly added that the December rate cut is not off the table.
• Board of Governors member Adrianna Kugler reiterated that the progress on inflation is still underway, while the policy is not on a preset course and that the central bank will make decisions meeting by meeting.
• Adding to this, Chicago Fed President Austan Goolsbee said that rates remain restrictive and need to come down a fair amount from where they are now over the next year if inflation gets close to the target.
• The market attention now shifts to Fed Chair Jerome Powell’s speech, which, along with the US Nonfarm Payrolls (NFP) report on Friday, should guide policymakers on their next monetary policy decision. 

AUD/USD bears have the upper hand after short-term trading range breakdown

From a technical perspective, weakness below the 0.6440-0.6435 region marks a breakdown through a short-term trading range held over the past two weeks or so. Moreover, oscillators on the daily chart are holding in negative territory and are still away from being in the oversold zone. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside and supports prospects for a further depreciating move. Spot prices now seem vulnerable to weaken further below the 0.6400 mark and retest the year-to-date low, around the 0.6350-0.6345 region touched in August. 

On the flip side, any meaningful recovery back above the 0.6500 psychological mark is likely to confront stiff resistance and remain capped near the 0.6535-0.6540 supply zone. A sustained strength beyond, however, could trigger a short-covering rally and allow the AUD/USD pair to reclaim the 0.6600 round figure en route to the 0.6625-0.6630 confluence hurdle. The latter comprises the 200- and the 50-day Simple Moving Averages (SMAs), which if cleared decisively might shift the near-term bias in favor of bullish traders and pave the way for additional gains.