- AUD/USD fades to bounce off one-week lows, off late.
- Fears emanating from China, mixed messages from RBA minutes challenge buyers.
- As the US dollar retreats, firmer equities block immediate downside ahead of key Aussie data.
- RBA emphasizes robust wage growth, Fed minutes eye for strong rate hike target.
AUD/USD depicts market anxiety as it is seen above 0.7020 ahead of key wage price data from Australia and minutes from the Federal Open Market Committee (FOMC) meeting early Wednesday in Asia. The risk-gauge pair fell over the past two days amid recession and geopolitical fears before bouncing back to a one-week low late on Tuesday.
Pessimism surrounding China, Australia’s main customer, and cautious remarks about further rate hikes from the Reserve Bank of Australia (RBA) have put significant downside pressure on AUD/USD prices of late.
On Tuesday, RBA minutes mentioned that the board expects to take further steps in normalizing monetary conditions in the coming months, but this is not on a pre-set path, according to Reuters. On the other hand, China’s state planners announced several measures to appease traders after downbeat data on recessionary woes and the failure of the People’s Bank of China (PBOC) to cut rates. Also, the Washington Post (WaPo) cited that Chinese authorities have ordered factories to halt production in several key manufacturing regions to conserve power as the country faces its worst heat wave in six decades.
Speaking of data, US industrial production in July was revised up 0.6% vs. 0.3% expected and up 0.0% while building permits rose to 1.674M MoM in the stated month against market expectations of 1.656 and previous readings of 1.696M. It should be noted that housing starts fell to 1.446M before 1.599M and 1.54M was expected.
Against this background, Wall Street managed to close on the positive side, albeit retreating towards the end of the day. The US 10-year Treasury yield snapped a two-day slide, regaining a recent 2.80%.
Moving forward, Australia’s second quarter (Q2) wage price index was 0.8% QoQ and 0.7% previously expected, important for immediate AUD/USD moves as RBA wages data and increased emphasis on inflation. Following that, the Fed minutes are critical for clear directions as traders doubt a 0.75% rate hike in September after the recent easing in inflation.
The four-month-old previous resistance line restricts the immediate AUD/USD downside to around 0.6990. Recovery moves, however, need validation from the 200-DMA barrier around 0.7120. An oscillator with a higher low on the histogram tends to support a higher low as the RSI (14) reference tends further up.