- AUD/USD has rebounded slightly from the almost two-week low reached this Wednesday.
- Strong domestic data, upbeat Chinese PMIs and positive risk tone offer some AUD support.
- Comments from Fed officials could revive demand for the USD and limit the pair’s rise.
The pair AUD/USD reverses an intraday drop to the 0.6885 area, or a nearly two-week low hit on Wednesday, and holds steady near daily highs during the European session. The pair, for the moment, seems to have capped this week’s pullback from near 0.7000or its highest level since June 17, touched on Monday.
The Australian dollar is supported by strong domestic data and an upbeat service sector activity report from China. In fact, the volume of Australian retail sales recorded the third consecutive quarterly increase and rose 1.4% during the April-June period to reach a new record. On the other hand, China’s Caixin services PMI continued to improve and soared to a 15-month high at 55.5 in July.
This coupled with subdued US dollar price action helps the AUD/USD pair attract some buying at lower levels. Signs of stability in equity markets turn out to be a key factor acting as a USD headwind haven, and provides additional support to the AUD, which is sensitive to risk. That being said, a significant recovery seems unlikely, which justifies the caution of the bulls.
Several Federal Reserve officials were very aggressive on Tuesday and hinted that interest rates will rise in the short term. In addition, growing fears of a recession and growing diplomatic tensions by the visit of the speaker of the US House of Representatives, Nancy Pelosi, to Taiwan, should put a stop to any optimistic movement in the markets. This, in turn, could revive demand for the dollar and cap gains for the AUD/USD pair.
Therefore, it is prudent to wait for strong continuation buying before positioning for any further upside moves. Market participants are now awaiting the release of the US Services PMI, due later at the start of the American session today. This coupled with US bond yields and broader risk sentiment would weigh on the dollar and provide some lift to the AUD/USD pair.
AUD/USD technical levels
Source: Fx Street
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