The AUD/USD pair plummets to near 0.6620 as investors worry about China’s economic prospects. Firm speculation that the Reserve Bank of Australia (RBA) will maintain a restrictive interest rate framework for the longest period fails to support the Australian Dollar. The risk-averse market mood improves the US Dollar’s appeal as a haven. The AUD/USD pair extends its losing streak for the seventh trading session on Tuesday. The Aussie asset weakens to near the round-level support of 0.6620 as the Australian Dollar (AUD) has been hit hard, being a liquid proxy of China’s Yuan. The Chinese economy is going through a vulnerable phase due to weak demand from domestic and overseas markets. The economy expanded at a slower pace of 0.7% in the second quarter, compared to estimates of 1.1% and the prior release of 1.5%.

Meanwhile, concerns over China’s economic prospects deepened after the People’s Bank of China (PBoC) surprisingly came out with a ten basis points (bps) cut in short-term Loan Prime Rates (LPRs) on Monday.

China’s poor economic outlook has outweighed the Australian Dollar’s strength was driven by firm speculation over the Reserve Bank of Australia (RBA) maintaining its monetary policy restrictive for the longest among Group of Seven (G-7) economies. Investors also expect that the RBA could hike its Official Cash Rate (OCR) further due to persistent inflationary pressures and a stable labor market.

Looking forward, investors will focus on preliminary Australian Judo Bank PMI data for July, which will be published on Wednesday.

The market sentiment remains risk-averse amid United States (US) political uncertainty. S&P 500 futures exhibit a subdued performance in European trading hours. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges higher to 104.40.

This week, there are plenty of triggers for the US Dollar, which will scrutinize the appropriateness of current market expectations pointing to rate cuts in September.

Trade Idea:

Consider short positions on AUD/USD around the 0.6650 level, targeting 0.6600, given the concerns over China’s economic outlook and the risk-averse market sentiment favoring the US Dollar. Monitor Chinese economic data and US political developments for further direction.