AUD/USD is on the defensive as China retail sales indicate softening domestic demand

• The Aussie dollar is erasing gains after a weaker-than-expected China retail sales release.
• Above-forecast China industrial production and fixed asset investment data may cap the downside in the AUD/USD.

The Aussie dollar, a proxy for China, is feeling the pull of gravity after China reported a sharp slowdown in the retail sales in October.

The data came in at 8.6 percent, missing the estimated figure of 9.1 percent. The big miss reinforces the view that domestic demand remains soft and is unlikely to support the economy, which may feel the heat of Trump's trade war in the coming quarters.

Simply put, China's economy could slow more than previously anticipated as domestic demand is unlikely to compensate for the drop in international trade's share in GDP.

As a result, the Aussie dollar risks falling into the red during the day ahead. As of writing, the AUD/USD is reporting marginal gains at 0.7226, having clocked a high of 0.7239 earlier today.

A better-than-expected China industrial production and fixed asset investment figure may have put a floor under the Aussie dollar.

AUD/USD Technical Levels