- AUD/USD picks up bids to pare daily loss but stays on the bear’s radar around yearly low.
- Downbeat yields challenge US dollar buyers at 20-year high.
- Softer Aussie trade numbers, RBA’s Lowe favored downside earlier in the day.
- Market sentiment dwindles as traders await ECB, Fed’s Powell.
AUD/USD extends the bounce off intraday low to 0.6745, down 0.42% intraday heading into Thursday’s European session. In doing so, the Aussie pair traces the US dollar’s latest pullback, due to softer yields, while portraying an overall cautious mood in the market ahead of the key events namely, European Central Bank (ECB) Monetary Policy Meeting and Fed Chair Jerome Powell’s speech.
That said, the US Dollar Index (DXY) retreats to 109.70 but stays mildly bid while reversing the previous day’s pullback from a two-decade top. The US 10-year Treasury yields extend Wednesday’s pullback from the highest levels since mid-June to 3.23%.
Reserve Bank of Australia (RBA) Governor Philip Lowe recently rejected plans to unveil the Quantitative Tightening (QT) and favored the AUD/USD bears. On the same line were his previous comments stating, “Further rate rises will be required but not on a pre-set path.”
Earlier in the day, Australia’s Trade Balance dropped to 8,733M in July versus 14,500 M market forecasts and 17,670 prior. Further details suggest that the Imports jumped by 5.2% compared to 0.7% prior while Exports slumped with the -9.9% figures versus 5.1% previous readings.
It should be noted that the risk-negative headlines concerning China also exert downside pressure on the AUD/USD prices. That said, the South China Morning Post (SCMP) mentioned previously, “Shenzhen reduces entry quota for Hong Kong travelers.” Following that, Reuters’ news that Taiwan and the US are bracing for stronger ties also weighs on the sentiment.
While portraying the mood, S&P 500 Futures fades the bounce off the lowest levels since July 19 as it seesaws around 3,980 by the press time.
Elsewhere, the CME’s FedWatch Tool signals a 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day, which in turn weighs on the AUD/USD prices.
Alternatively, the cautious mood and the market’s rush towards the bond for risk-safety, amid fears of disappointment from the Fed’s Powell, seem to have triggered the latest recovery moves.
Moving on, the 0.75% ECB rate hike can restrict a short-term fall before the fresh downside, in a case where Fed’s Powell sounds hawkish. Overall, the pair is likely to remain on the bear’s radar as ECB’s capacity to tighten monetary policy is limited compared to the Fed.
Technical analysis
AUD/USD remains bearish unless crossing the 0.6780 resistance confluence, including the one-week-old resistance line and 78.6% Fibonacci retracement level of July-August upside.