The Australian dollar suffered steep losses in December amid more evidence of a slowing Chinese economy. In January, the Aussie made recovery attempts and has partly offset the previous decline, However, the downside risks for the pair are still there and the selling pressure may intensify in the days to come.
The key reasons behind the indecisive AUDUSD dynamics are the US-China trade relations and ugly signals from the Australian economy. As such, the National Australia Bank’s survey showed that the overall business confidence remained at lowest level since January 2016, while current conditions assessment plunged to 2 from 11 in November, which reflects the slowdown visible in the incoming data from China, Australia’s number one export market.
As for the other risk for the Australian currency, Huawei scandal and arrest of CFO could complicate the trade negotiations due on January 30-31. The US Department of Justice has formally requested extradition of Huawei CFO from Canada, while Beijing asked the US to withdraw the arrest order and said the charges were unfair and unethical. These developments could further aggravate relations between the two countries and spoil the atmosphere right before the new round of trade negotiations.
Technically, failed attempts to regain the 0.72 figure in the short term could lead to a stronger downside pressure should the risk aversion resume. The immediate significant support comes at 0.7080. As long as the pair is holding above this region, the selling pressure is limited.