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Q3 AUD/USD Bearish Trading Opportunity of the Year Sentiment-linked Despite traders’ optimism, the Australian dollar declined in the second quarter. In comparison to the RBA, the Federal Reserve appears to be less dovish. In Q3, the AUD/USD may suffer due to significant China spillovers. View each DailyFX Analyst’s favorite trades for the third quarter. From the DailyFX Free Trading Guides, download our new 3Q top trading chances guide! The Australian Dollar reached a high versus the US Dollar in the first quarter and then fell steadily for the next three months. The third quarter could be similar, with the AUD/USD trading at a low level. Because of a combination of a less dovish Federal Reserve and ongoing developments in China, the currency’s trajectory may be jeopardized. The Federal Reserve in the United States is growing less dovish. A consensus for two rate rises by the end of 2023 was revealed in June’s monetary policy announcement. This suggests that the company’s balance sheet may be tapered sooner than expected. Meanwhile, Australia’s Reserve Bank has stated that the cash rate will not be raised until 2024 at the earliest. As a result, the yield edge may go to the US Dollar in the long run, as market sentiment momentum is unlikely to maintain the breakneck speed seen for much of last year. The growth-linked Australian Dollar could exploit this to restart its upward momentum, and it remains an upside factor for AUD/USD. The People’s Bank of China (PBOC), Australia’s largest trading partner, has already begun to normalize monetary policy to some extent. For the most of this year, the central bank has been draining liquidity through open market operations. This comes as corporate bond issuance fell to its lowest level since May 2017. China’s government is attempting to combat financial market euphoria, voicing concerns about market bubbles and commodity speculation. The country is attempting to release metal reserves in order to control rising prices, such as those observed in copper. Meanwhile, geopolitical tensions are rising between China and Australia. Following the Covid-19 outbreak, Australia (along with other foreign communities) demanded a probe into China’s management of the coronavirus. In response, the latter imposed tariffs on a number of Australian imports. China also filed an anti-dumping lawsuit against Australia at the World Trade Organization near the end of June. The Aussie Dollar may struggle in the third quarter as a result of a less dovish Fed, the PBOC’s normalization, and worsening Sino-Australian relations. Economic developments in China frequently have a knock-on effect on Australia due to close trading ties. Given the Australian Dollar’s sentiment-driven character, this does not appear to be a good sign. A bespoke majors-based Australian Dollar index can be seen aiming lower with the CSI 300 and copper prices in the graphic below. The index compares the Australian dollar to the US dollar, the euro, the British pound, and the Japanese yen. Furthermore, the velocity between the three data series that began after March 2020 has slowed substantially. It’s possible that we’ll see more of the same in the future. View each DailyFX Analyst’s favorite trades for the third quarter. From the DailyFX Free Trading Guides, download our new 3Q top trading chances guide! AUD Index Based on Majors vs. CSI 300 and Copper Futures – TradingView Daily ChartChart—- Daniel Dubrovsky is a strategist for DailyFX.com. Use the comments area below to reach out to Daniel, or follow him on Twitter at @ddubrovskyFX./nRead More

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