Australian Dollar declines on soft Chinese data

• China's soft CPI and PPI data signals deflation risk, weighs on AUD.
• Deflationary risks in China may limit fiscal measures to boost consumption.
• USD recovery also contributed to the downturn.

The AUD/USD declined by 0.25% to 0.6655 on Monday, weighed down by recession fears and weak data from China. China's soft inflation figures data signaled deflation risks. The US dollar strengthened, which also weighted on the pair.

The Australian economy faces an uncertain future. The Reserve Bank of Australia's (RBA) aggressive stance against inflation suggests that any potential easing in monetary policy is unlikely in the near term. Market expectations have shifted, with only a slight reduction of interest rates by 0.25% being anticipated in 2024.

Daily digest market movers: Australian Dollar declines amidst recession fears in China

• China's soft Consumer Price Index (CPI) and Producer Prince Index (PPI) indicated deflationary risks.
• CPI came in at 0.6% YoY vs 0.5% expected, while PPI declined by 1.8% YoY vs the 1.5% expected.
• Food prices drove CPI inflation higher, but core inflation remains subdued at 0.3% YoY.
• Deflationary risks persist, highlighting the need for fiscal measures to boost consumption.
• On the US side, the Greenback recovered further after mixed labor market figures reported on Friday.
• The focus is now on Wednesday's CPI figures from August.
• Monetary policy divergences between the Federal Reserve and the Reserve Bank of Australia may support the AUD/USD downside.

AUD/USD technical outlook: Pair faces bearish momentum with support at 0.6600

The Relative Strength Index (RSI), which is a technical indicator measuring the strength and momentum of a trend, is currently at 45 in the negative area, indicating that the bears are in control. The Moving Average Convergence Divergence (MACD), which is another technical indicator used to identify trends, is also showing bearish momentum.

The pair is likely to remain under pressure in the near term. The 0.6645 (100-day SMA) level is a key support level, which if broken could send the pair to the 0.6600 level. On the upside, the 0.6700 level is a key resistance level, which if broken could send the pair to the 0.6720 level (200-day SMA).