- AUD/USD licks its wounds after falling the most in two weeks.
- Fears of recession join cautious mood ahead of Fed/RBA Minutes to exert downside pressure on the pair.
- Market sentiment dwindles, but Wall Street manages to post mild gains.
- RBA Minutes eyed for hints of further rate hikes amid economic slowdown fears.
AUD/USD holds lower ground near 0.7120 as bears take a breather after the most prominent daily fall in a fortnight. That said, the Aussie pair’s inaction during Tuesday’s Asian session could be linked to the cautious mood ahead of the Reserve Bank of Australia’s (RBA) Minutes of the latest monetary policy meeting and mixed concerns surrounding growth and inflation.
The quote began the critical week on a negative footing after China’s downbeat data and the People’s Bank of China’s (PBOC) surprised rate cut spread fears for the AUD/USD due to Australia’s strong trade ties with the dragon nation. Also weighing on the Aussie pair was the anxiety over the Fed’s next move after the recently downbeat data and hawkish Fedspeak.
The downbeat print of the US NY Empire State Manufacturing Index for August, to 31.3 in August from 11.1 in July and 8.5 market forecasts, contributed to the economic slowdown fears. On the same line, the US August NAHB homebuilder confidence index also fell to 49 versus 55, its lowest level since the initial months of 2020.
It’s worth noting, however, that the Federal Reserve (Fed) policymakers held their hawkish bias while suggesting the need for more proof of softer inflation. The latest from the Fed was Richmond Federal Reserve (Fed) Bank President Thomas Barkin, who said he wants to raise interest rates further to bring inflation under control. “I’d like to see a period of sustained inflation under control, and until we do that I think we are just going to have to move rates into restrictive territory,” Barkin told CNBC, per Reuters.
On the other hand, China’s Retail Sales eased to 2.7% YoY in July versus 5.0% expected and 3.1% prior. In contrast, Industrial Production (IP) edged lower to 3.8% during the stated month, from 3.9% prior and 4.6% market forecasts. Additionally, the PBOC cut the one-year medium-term lending facility (MLF) rates by ten basis points (bps) and tried to push back the bears.
Elsewhere, headlines suggesting improved coronavirus conditions in China’s financial hub Shanghai and the resumption of the Russian bonds’ trading on Wall Street should have favored the risk appetite but could not. Furthermore, hopes of a probable meeting between US President Joe Biden and his Chinese counterpart Xi Jinping, as signaled by the Wall Street Journal (WSJ), could favor the risk-on mood. On the same line were comments from China’s President Xi suggesting more efforts to revive the world’s second-largest economy.
Against this backdrop, the US 10-year Treasury yields dropped six basis points (bps) to 2.79% whereas Wall Street closed with mild gains. It should be noted that the S&P 500 Futures print mild losses by retreating from a three-month high by the press time.
Moving on, AUD/USD traders should pay attention to the risk catalysts ahead of the RBA Minutes. The Aussie central bank announced a 0.50% rate hike in August, but the concerns over the economic growth teased bears, highlighting today’s Minute Statement for fresh impulse. Should the policymakers appear unconvinced of the next rate hike, due to the recession woes, the AUD/USD price may have a further downside to track.
A clear U-turn from the 200-DMA hurdle, around 0.7120 by the press time, directs AUD/USD prices towards the previous resistance line from April 20, close to 0.6980 at the latest.
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