AUD/USD licks its wounds at two-month low around mid-0.6500s ahead of key Australia, US data

• AUD/USD portrays corrective bounce after falling heavily in the last two consecutive days to refresh a multi-week low.
• US Dollar cheered risk aversion, strong yields after Fitch Ratings’ downgrade to US government credit rating.
• Upbeat US ADP Employment Change, RBA’s surprise pause add strength to downside bias about Aussie pair.
• Australia Retail Sales, Trade Balance and a slew of activity/employment clues from China and US eyed for clear directions.

AUD/USD prints mild gains around 0.6540 amid the initial Asian session on Thursday as it consolidates the recent losses after falling heavily in the last two consecutive days to the lowest levels since early June. In doing so, the Aussie pair braces for a slew of top-tier data from Australia, China and the US after bearing the burden of the Reserve Bank of Australia’s (RBA) rate hike pause and the strong US Dollar.

That said, the Fitch Ratings’ downgrade to the US government credit rating flagged fears of the US default and weighed on the sentiment, which in turn bolstered the US Dollar’s haven demand, drowning the AUD/USD pair due to its risk-barometer status. Apart from the haven demand, upbeat prints of the US ADP Employment Change and a run-up in the Treasury bond yields also pleased the Aussie bears.

It’s worth mentioning that downbeat prints of Australia’s AiG activity numbers for June also weighed on the AUD/USD price.

On Wednesday, Australia’s AiG Industry Index for June slumped to -14.7 from -11.9 whereas AiG Manufacturing PMI for the said month nosedived to -25.6 from -19.8 previous readings. That said, Australia’s S&P Global Composite PMI edges lower to 48.2 for July from 48.3 while the Services PMI eases to 47.9 from 48.0.

On the other hand, US ADP Employment Change for July rose past 189K markets forecasts to 324K while the previous readings were revised down to 455K.

It should be noted that US Treasury Secretary Janet Yellen and White House (WH) Economic Adviser Jared Bernstein defended the credibility of the US Treasury bonds and vouched for the US economic strength after Fitch Ratings’ cited such concerns as the catalysts for their downgrade to the US government credit ratings. On the same line, the US Treasury Department raised possibilities of testing demand for the US bonds after the rating cut by fueling the weekly longer-term debt issuance. The same pushed markets to remain worrisome and rush for risk safety. As a result, US 10-year Treasury bond yields rose to the highest level since November 2022 while the US Dollar Index (DXY) also jumped to a three-week top. Further, the Wall Street benchmarks also closed in the red and portrayed risk aversion.

Looking forward, Australia’s second-quarter (Q2) Retail Sales and Trade Balance for June will join China’s Caixin Services PMI for July to entertain AUD/USD traders during the Asian session. Following that, the US ISM Services PMI, Factory Orders, Weekly Initial Jobless Claims and quarterly readings of Nonfarm Productivity and Unit Labor Costs will be crucial to watch for clear directions. Although the RBA is more likely to have reached the policy pivot, especially after the latest two consecutive pauses, today’s Aussie data and Friday’s RBA Monetary Policy Statement can help confirm the bias and may flag further downside of the AUD/USD pair.

Technical analysis

A daily closing beneath the 10-month-old rising support line, now immediate resistance near 0.6590, directs the AUD/USD bears toward the yearly low marked in May around 0.6460.