Australian dollar at 4-week low

The Australian dollar remains under pressure, as AUD/USD is in negative territory at the start of the week, trading at 0.7367 in Europe. The currency has eked out just one winning daily session in the past eight and is trading at 4-week lows.

Fed, China weighing on Aussie

The Australian dollar can’t seem to buy a break, as the currency fell on Friday and is down today, even with Australian markets closed for Easter Friday and Monday. The main drivers behind the Aussie’s slide are the Fed’s hawkish stance and growth concerns over China.

The Federal Reserve started its rate-tightening cycle with a 0.25% hike in March but there are growing expectations that the Fed will implement one or more oversize hikes of 0.50% in order to contain red-hot inflation. For the May meeting, CME’s FedWatch has pegged the probability of a 0.50% rate increase at 91%. This has powered US Treasury yields higher, with the 10-year yield rising to 2.87% earlier on Monday, a 3-year high. The US dollar has followed suit, putting more pressure on the Australian currency.

In China, GDP for Q1 rose 4.8%, beating the consensus of 4.50%. Still, this is much slower growth than we’re used to seeing from the Asian giant. The economy has been dampened by the battered property sector, and harsh Covid regulations. Chinese regulators have promised relief for the property market, but with developers continuing to miss their bond payments, we’re unlikely to see much improvement.

China’s zero-policy for Covid has made the headlines due to the hardships residents are encountering in Shanghai, but in truth there are hundreds of millions of people in full or partial lockdown. The resulting downturn in economic activity could well have a global effect, with the disruption to supply chains. China is Australia’s largest trading partner, and the Australian dollar is sensitive to economic developments in China.

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AUD/USD Technical

• AUD/USD faces resistance at 0.7427 and 0.7462
• There is weak support at 0.7359. Close by, there is support at 0.7324

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