Aussie dollar under increased pressure from weak China’s manufacturing data

Australian dollar fell to new multi-month low in early Wednesday, after coming under increased pressure from risk aversion and slowdown in Chinese factory activity.

China’s manufacturing PMI fell to 48.8 in May vs 49.2 contraction in April and well below 51.4 forecast, with deeper drop below 50 level which divides growth from contraction, adding to worries about the pace of country’s post-pandemic recovery.

Australia’s inflation report, which was released simultaneously, showed that inflation unexpectedly rose to 6.8% in April vs 6.4% consensus, though slightly below 7.0% in March and add pressure to the central bank, raising prospects for further rate hikes, though positive impact on Aussie dollar from the report was minor and short-lived.

On the other hand, fresh hawkish comments from Fed policymakers, favoring continuation of policy tightening cycle and keeping high interest rates for some time, inflate US dollar.

The pair is on track for the fourth consecutive monthly loss that adds to negative outlook, as technical studies are firmly bearish on daily and weekly chart.

However, the price action may face increased headwinds in coming sessions as daily studies are oversold, with upticks likely to be limited as overall picture is bearish.

Broken Fibo 61.8% (0.6547), falling 10 DMA (0.6562) and weekly cloud base (0.6581) mark significant barriers which should cap upticks and keep larger bears in play for extension towards targets at 0.6403/0.6272 (Fibo 76.4% of 0.6170/0.7157 / Nov 11 trough).

Res: 0.6547; 0.6562; 0.6581; 0.6637
Sup: 0.6451; 0.6403; 0.6386; 0.6272