AUD/USD retreats towards 0.6950 on China PMIs, geopolitics with eyes on RBA, US NFP

• AUD/USD seesaws around six-week high, renews intraday low to pare recent gains.
• Market sentiment dwindles on China’s downbeat PMIs, Beijing’s warnings over US-Taiwan ties.
• US PCE data, Fedspeak also weigh on the prices even as recession woes, rate neutrality favor bulls.
• RBA’s 50 bps move may not favor bulls if US jobs report prints strong data.

AUD/USD bulls take a breather after a two-week upside, recently easing to 0.6975 during Monday’s initial Asian session, amid mixed clues. Among them, the cautious mood ahead of the Reserve Bank of Australia’s (RBA) monetary policy meeting and the US employment report for July, as well as fresh fears surrounding the Sino-American tussles appear to have gained major attention. On the same line were the recently hawkish concerns surrounding the US Federal Reserve (Fed) and downbeat Purchasing Managers Index (PMI) data from Australia’s biggest customer China.

During the weekend, China’s official PMIs for July portrayed an unclear picture of the world’s second-largest economy. That said, the headline NBS Manufacturing PMI dropped back into contraction after the previous monthly improvement, down to 49.0 versus 50.4 expected and 50.2 prior. Further, the Non-Manufacturing PMI rose past 52.3 market forecast to 53.8, against 54.7 in previous readouts.

At home, Australia’s AiG Performance of Manufacturing Index for July also eased to 52.5 from 54.00.

Elsewhere, Beijing warns the White House over US House Speaker Nancy Pelosi’s plan to visit Taiwan. Also weighing on the sentiment, as well as the AUD/USD prices, is the news that US President Joe Biden got a covid infection.

That said, the US Dollar Index (DXY) marked the second consecutive weekly fall after the US Federal Reserve (Fed) Chairman Jerome Powell highlighted data-dependency and neutral rates. Also drowning the greenback was the “technical recession” in the US after the Annualized readings of the US Q2 Gross Domestic Product (GDP) dropped for the second straight quarter.

Even so, comments from Minneapolis Fed President Niel Kashkari and the Fed’s preferred inflation gauge appeared to have probed the greenback bears of late. “The fed is still a long way away from backing off rate hikes,” said Fed’s Kashkari to the New York Times (NYT). The policymaker added, “Hiking rates by half a point at coming Fed meetings seems reasonable to me.” Furthermore, the US Core Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred gauge of inflation, rose to 4.8% YoY for June versus 4.7% prior.

Amid these plays, Wall Street closed positive and the US Treasury yields were pressured. However, the S&P 500 Futures print mild losses of late.

Although the recently sour sentiment weighs on the AUD/USD prices, hopes of 50 basis points (bps) of the RBA rate hike keep the pair buyers hopeful. However, the US PMIs and Nonfarm Payrolls (PMI) should remain softer to keep the USD bulls away in that case.

Technical analysis

The 50-DMA level surrounding 0.6965 restricts AUD/USD pair’s immediate downside but the bears are likely to wait for a clear downside break of the 0.6905 support confluence, comprising the previous resistance line from April and 38.2% Fibonacci retracement (Fibo.) of June-July downside. That said, buyers may aim for the 61.8% Fibo. level near 0.7050 during the further upside.