Market news
03.08.2022, 07:10

AUD/USD sticks to modest recovery gains around 0.6930-35 area, lacks follow-through

  • AUD/USD stages a modest bounce from a nearly two-week low touched earlier this Wednesday.
  • Strong domestic data, upbeat Chinese PMI, a positive risk tone offer some support to the aussie.
  • The overnight hawkish remarks by Fed officials could revive the USD demand and cap the upside.

The AUD/USD pair reverses an intraday dip to the 0.6885 region, or a nearly two-week low touched on Wednesday and holds steady near the daily high during the early European session. The pair, for now, seems to have stalled this week's retracement slide from the vicinity of mid-0.7000s, or its highest level since June 17 touched on Monday.

The Australian dollar draws support from strong domestic data and the upbeat Chinese service-sector activity report. In fact, Australian retail sales volumes recorded the third consecutive quarterly increase and rose 1.4% during the April-June period to reach a new record. Separately, China's Caixin Services PMI improved further and shot to a 15-month high of 55.5 in July.

This, along with subdued US dollar price action, assists the AUD/USD pair to attract some buying at lower levels. Signs of stability in the equity markets turn out to be a key factor acting as a headwind for the safe-haven greenback and offering additional support to the risk-sensitive aussie. That said, any meaningful recovery seems elusive, warranting caution for bulls.

Several Federal Reserve officials sounded hawkish on Tuesday and hinted that more interest rates are coming in the near term. Furthermore, growing recession fears and mounting diplomatic tensions over US House Speaker Nancy Pelosi's Taiwan visit should keep a lid on any optimistic move in the markets. This, in turn, could revive the USD demand and cap gains for the AUD/USD pair.

This makes it prudent to wait for strong follow-through buying before positioning for any further appreciating move. Market participants now look forward to the US ISM Services PMI, due for release later during the early North American session. This, along with the US bond yields and the broader risk sentiment, would influence the USD and provide some impetus to the AUD/USD pair.

Technical levels to watch

 

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