AUDUSD Down, Test the Top of Previous Range After PBOC LRP

In early July, the AUDUSD pair turned bullish, breaking above the previous range. However, sellers reemerged last week, and the pair is now testing the 200 daily SMA, which marks the upper boundary of the range. Today the People’s Bank of China LPR left its benchmark Loan Prime Rates unchanged, with the 1-year and 5-year LPR at the current levels of 3.45% and 3.95%, respectively.

The People’s Bank of China’s decision to maintain its benchmark rates comes on the heels of its decision to keep the 1-year Medium-term Lending Facility (MLF) rate steady at 2.50%. This move serves as a reliable precursor to their intentions regarding Loan Prime Rates (LPRs), which are the reference rates for most new loans and mortgages. Additionally, the central bank seems to be concentrating on short-term liquidity measures, as indicated by the increased injections during this week’s 7-day reverse repo announcements.

On longer-term charts, such as the weekly chart, this pair has been in a downtrend since 2020, making lower highs despite brief rallies above 0.80. After months of range-bound trading, July saw a notable bullish surge. The Aussie dollar gained more than 100 pips in the first two weeks of July, while the USD weakened due to a slowdown in the US economy and a dip in CPI inflation. Historically, the pair’s price movements have been sensitive to market sentiment toward the USD.

AUD/USD Chart Daily – Heading for the 100 SMA

Conversely, the Reserve Bank of Australia (RBA) maintained a strict hawkish stance, supporting the Australian dollar. By this reasoning, the currency should have remained bullish, but sellers have taken control despite Australia’s recent strong employment data.

AUD/USD closed the week at 0.6683, down by around 1.4%, driven by negative risk sentiment. Disappointing Q2 GDP figures from China have also weighed heavily on the Australian Dollar due to its close economic ties with China. Additionally, falling commodity prices, particularly iron ore, which has dropped over 4% in July, have further impacted commodity-linked currencies negatively. Last night the People’s Bank of China has cut one- and five-year loan prime rates.

People’s Bank of China Benchmark Loan Prime Rates

AUD/USD Live Chart