AUD/USD and NZD/USD Fundamental Analysis: China Economy in Focus

Highlights

• The AUD/USD and the NZD/USD are in action by proxy this morning, with the China Caixin Manufacturing PMI numbers in focus.
• Economic indicators from Australia will likely play second fiddle to China’s manufacturing PMI as investors continue to fret over the economic outlook.
• However, US ISM Manufacturing PMI numbers and Fed chatter will also need consideration before the Fourth of July holidays.

It is a busy start to the day for the AUD/USD and the NZD/USD. Manufacturing PMI numbers from Australia drew interest early in the session. However, the finalized figures had a limited impact on the Aussie.

Later in the session, the all-important Caixin Manufacturing PMI from China will move the dial. An unexpected contraction across the manufacturing sector would weigh on the Aussie and the Kiwi and riskier assets. Economists forecast the Caixin Manufacturing PMI to fall from 50.9 to 50.2.

Other stats include home loan and building permit numbers from Australia that investors will likely brush aside.

The European Session

Looking ahead to the European session, investors should also consider the manufacturing PMI numbers for Italy, Germany, and the Eurozone. A deeper contraction across the Eurozone manufacturing sector would weigh on demand expectations for raw materials and commodity currencies.

The US Session

However, we expect US economic indicators to have more influence.

The ISM Manufacturing PMI will draw plenty of interest later today. Investors should consider employment, inflation, and new order sub-components.

Softer-than-expected inflation numbers on Friday failed to curtail bets on a Fed 25-basis point interest rate hike this month nor another move in September. Weak PMI numbers could impact sentiment toward a post-summer rate hike.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 86.8% versus 71.9% one week earlier. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 20.8%, up from 11.5% one week earlier.

AUD/USD Price Action

Daily Chart

The Daily Chart shows an AUD/USD breakout from the psychological $0.66 support level as the markets responded to US inflation numbers. However, the AUD/USD remains below the 200-day ($0.67527) and 50-day ($0.66914) EMAs, signaling bearish momentum over the near and long term.

Notably, the 50-day EMA continues to pull back from the 200-day EMA and reflects bearish momentum despite two consecutive days in the green on Thursday and Friday.

Looking at the 14-Daily RSI, the 45.80 reading signals a moderately bearish trend, aligned with the 50-day and 200-day EMAs.

4-Hourly Chart

Looking at the 4-Hourly Chart, the AUD/USD faces stern resistance at the $0.67 psychological level. Despite a bullish end to last week, the AUD/USD continues to sit below the 200-day ($0.66924) and 50-day ($0.66793) EMAs. Significantly, the 50-day EMA pulled back further from the 200-day EMA, signaling another test of the current support range of $0.6600 – $0.6615.

The AUD/USD would need to break out from the 50-day and 200-day EMAs to target the pre-Friday June 23 resistance band of $0.6750 – $0.6770.

However, the 14-4H RSI reading of 50.91 indicates a moderately bullish stance, with buying pressure outweighing selling pressure. A fall below 50 would align the RSI with the EMAs and signal a retreat to test the current support range of $0.6600 – $0.6615.

Daily Resistance & Support Levels

NZD/USD Price Action

Daily Chart

The Daily Chart shows an NZD/USD breakout from the psychological $0.6650 support level as the markets responded to US inflation numbers. However, the NZD/USD remains below the 200-day ($0.62235) and 50-day ($0.61644) EMAs, signaling bearish momentum over the near and long term.

Notably, the 50-day EMA continues to pull back from the 200-day EMA, reflecting bearish momentum despite the bullish Friday session.

Looking at the 14-Daily RSI, the 48.62 reading signals a moderately bearish trend, aligned with the 50-day and 200-day EMAs.

4-Hourly Chart

Looking at the 4-Hourly Chart, the NZD/USD faces stern resistance at the $0.6150 psychological level. After the breakout Friday session, the NZD/USD sits above the 50-day EMA ($0.61299), signaling a near-term bullish trend. Nonetheless, the Kiwi remains below the 200-day ($0.61518), a bearish signal. However, the 50-day EMA narrowed to the 200-day EMA, supporting a run at the 200-day EMA ($0.61518).

A move through the 200-day EMA would bring the upper $0.6234 – $0.6250 resistance band into view. A fall through the 50-day EMA would give the bears a run at the $0.6100 psychological legal and the lower support band of $0.6035 – $0.6015.

The 14-4H RSI reading of 56.49 indicates a moderately bullish stance, with buying pressure outweighing selling pressure. A fall below 50 would align the RSI with the 200-day EMA and signal a retreat to sub-$0.61 to target the current support range of $0.6035 – $0.6015.

Daily Resistance & Support Levels