AUD/USD turns negative as China services PMI hits 21-month low

AUD/USD surrendered gains and dropped to a low of 0.7765 after the data released in China Caixin/Markit September services PMI printed at a a21-month low of 50.6.

Caixin has a larger weight of small/medium export oriented businesses. Thus, it provides a better picture of the economic activity as compared to the official data, which is more focused on State Owned Enterprises (SOE's who have access to cheap credit).

The Aussie dollar, a proxy for China, fell from 0.7782 to 0.7765 and was last seen trading around 0.7772 levels.

Focus on AU-US 10-year yield differential

Despite the weak China, data the spread/difference between the Australia 10-year bond yield and the US 10-year Treasury yield is holding up well. The spread currently stands at 46.8 basis points vs. Friday's 45.4 bps. The resilience in the yield spread suggests sharp losses in the Aussie are unlikely.

AUD/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes, "Technically, the daily chart shows that the risk remains towards the downside, as technical indicators resumed their declines within bearish territory, now nearing oversold levels, whilst the 20 SMA accelerated its decline well above the current level, now nearing 0.7900. According to the 4 hours chart, the risk is also towards the downside, as the price settled further below bearish moving averages, whilst technical indicators hover near oversold readings, with no aims of changing course."