AUD/USD Falls Below 0.6400 To Reach a New Low For The Year As Bearish Sentiment Prevails

In the early hours of Thursday, AUD/USD retested the Year-to-Date (YTD) low near 0.6370, justifying disappointing Australian employment data and a general risk-off sentiment. As a result, the Australian dollar falls for the eighth consecutive day as the US dollar strengthens.

Australia's headline Employment Change for July on a seasonally-adjusted basis decreased to -14.6K compared to 15.0K expected and 32.6K previously, while the Unemployment Rate increased to 3.7% versus the market's expectation of another 3.5% figure.

Aside from the mostly negative Australian employment report, economic concerns surrounding Australia's largest customer China and the recent hawkish Federal Open Market Committee (FOMC) meeting minutes weigh on the AUD/USD exchange rate.

Nevertheless, the most recent Fed meeting minutes highlighted the policymakers' discussion of inflationary pressure, despite showing a divided opinion on the decision to raise interest rates. However, the Minutes also revealed that the majority of policymakers favoured fighting'sticky' inflation.

The AUD/USD bears are inspired not only by the hawkish Fed Minutes, but also by the largely positive US data and higher US Treasury bond yields. Wednesday saw an unexpected 1.0% increase in US Industrial Production for July, compared to 0.3% expected and -0.8% previously, while Capacity Utilisation improved to 79.3% from 78.6%, contrary to market expectations of 79.3%. In addition, Building Permits increased to 1.442 million in July from 1.441 million in June, while Housing Starts increased to 1.452 million in July from 1.398 million in June and 1.448 million expected. Both the Building Permits Change and the Housing Starts Change improved more than market expectations and previous readings. Previously, US Retail Sales grew 0.7% MoM in July compared to the 0.4% expected and 0.3% reported in June (revised from 0.2%), indicating robust consumer spending, primarily due to higher wages, which aided the dollar to remain firmer during early weekdays.

Domestically, Australia's Westpac Leading Index fell to -0.02% MoM in July from a downwardly revised 0.07% in June. In addition, China's Housing Price Index declined from 0.0% to -0.1% in July.

On a separate page, the June decline in China's housing prices adds to concerns of another bond market crisis in the Dragon Nation, as the largest private real estate firm, Country Garden, struggles to make bond payments. It should be noted that Chinese policymakers have been making every effort to defy concerns about a slowing economic recovery, but no significant market reaction has been observed recently, which flags concerns about the recession of the second-largest economy in the world and weighs on the AUD/USD exchange rate.

The news that the global rating agency Fitch Ratings lowered medium-term Gross Domestic Product (GDP) projections for 10 developed economies in its quarterly Global Economic Outlook also weighs on sentiment and the AUD/USD exchange rate.

Wall Street ended the day in the red, while 10-year US Treasury bond yields reached a new annual high of 4.278%. It should be noted that S&P500 Futures have fallen to their lowest level in seven weeks as of press time, giving Aussie bears optimism for further declines.

A light calendar may enable Aussie bears to take a breather in the event that risk-positive headlines emerge. However, the bearish bias is unlikely to reverse in the near future. In addition, the US weekly jobless claims and Philadelphia Fed Manufacturing Survey for August should be closely monitored for unambiguous indications of direction.

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