Australian dollar touches four-month low as the China pop fades and RBA shifts dovishly

The Australian dollar is at the lows of the day, down 67 pips to 0.6370.

The drop erases a strong gain yesterday that came on optimism about China stimulus. However the Chinese market slumped today on pessimism that Beijing will actually deliver stronger growth. The US-listed China MCHI ETF is down 4.7% today after climbing 7% yesterday.

Compounding the declines for the Australian dollar is a shift at the RBA earlier today. Rates were left unchanged but the board said it is gaining some confidence that inflationary pressures are
declining. Governor Bullock said the change in wording in the statement was to acknowledge that some of the data has been softer than we expected.

The next RBA decision is in February and the market is now pricing in a 54% chance of a cut.

For the short-term, I expect China news to dominate as the conference is set to be held Dec 11-12 (though possibly extending to the 13th), with statements likely at the end of meeting.

As for AUD/USD, the pair is in a precarious position now with the August low of 0.6346 within striking distance. The 2023 low of 0.6268 isn’t far below that. Those will need to hold for both Australian prospects and for positive signs on 2025 global growth.

This article was written by Adam Button at www.forexlive.com.