• Australian dollar is by far the weakest currency in G10 during the day
  • S&P cuts China’s credit rating on mounting risks from debt growth
  • Iron ore prices plunge to the lowest since mid-July
  • AUDUSD could be in a tipping point after the FED’s meeting

The FED plays by far the major role when it comes to pushing the Australian dollar down, however there is no the sole reason why the AUD is so weak today. The AUDUSD is already down 1.2% and it’s decisively the largest move across the broad FX market.

Beside the Federal Reserve, which contributed to a fresh sell-off of the AUD yesterday, S&P added fuel to the fire as well as it chose to slash the Chinese credit rating for the first time since 1999, citing mainly the risks from surging debt. On the flip side, the outlook was revised up from negative to stable. The sovereign rating was cut by one step, to A+ from AA-. The rating agency justified its decision saying that China’s prolonged period of strong credit growth has increased its economic and financial risks and although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.

The decision could be especially unpleasant as it shows ebbing confidence to the second largest economy in the world just a month before the Communist Party congress.

link do file download linkAUDUSD could be overpriced against the short-term outlook of iron ore. Source: Bloomberg, XTB

Finally, a third blow came from iron ore prices which dropped more than 5% in Qingdao. It may be partially reflected by the downgrading of the Chinese rating but prices have been falling for some time, hence that’s not a one-off event. Having regard to the Communist Party congress and weighing it against the elevated levels of the AUDUSD one could notice that further declines on the pair could be in the offing.

link do file download linkThe AUDUSD has bounced off its crucial resistance area of late which could herald a continuation of the current move. Source: xStation5

A technical view suggests that bears could continue their move. The price rebounded from an important resistance zone three times and could eye the closest support nearby 0.7870. If that level is broken as well, the pair could slide towards 0.7755 – the exceptionally relevant place from a technical standpoint.