AUD/USD defends 100 DMA amid China-Taiwan woes, ahead of US inflation

• AUD/USD remains on the backfoot amid looming China-Taiwan risks.
• Higher copper and iron-ore prices combined with softer USD cap aussie’s losses.
• Bulls remain hopeful while above 100 DMA ahead of the key US inflation data.

AUD/USD is trading modestly flat below 0.7000, struggling for a clear directional move amid a cautious risk tone, broad US dollar weakness and rising industrial metals prices.

The implications of these varied factors have left the aussie wavering in a 30-pips narrow range. The quiet trading around the currency pair could be also associated with the pre-US inflation caution. Investors turn on the sidelines ahead of the key event risk of this week, which will lead the Fed to decide on a potential 75 bps rate hike next month.

The US dollar, however, extends the previous decline, in anticipation of a softer annualized US inflation print even as the Treasury yields attempt a minor bounce in European trading. The downside in the aussie, therefore, remains cushioned by a broadly weaker greenback.

Further, impressive Chinese exports data-led strength in copper and iron-ore prices is also helping the aussie stay afloat while investors assess the upbeat National Australia Bank (NAB) survey of business for July.

On the downside, the main risk for the aussie dollar remains the brewing conflict between China and Taiwan over US House Speaker Nancy Pelosi’s visit last week. China continues military drills close to the Taiwan strait, prompting the latter to believe that Beijing is preparing to invade Taipei. Markets now remain focused on Wednesday’s US inflation data while playing along the supportive daily structure on the aussie’s technical chart.

AUD/USD has managed to defend the flattish 100-Daily Moving Average (DMA) support at 0.6966 so far this Tuesday, which has revived the bullish interest.

Bulls now yearn for acceptance above 0.7000 to kick off any meaningful upside attempt.

The next target for AUD buyers is aligned near $0.7050, the confluence of the psychological support and the previous week’s high.

The 14-day Relative Strength Index (RSI) is trading flat above the midline, suggesting that there could be more room for the upside.

On the flip side, a sustained move below the 100 DMA will put the bullish 21 DMA at 0.6930 at risk. Additional declines will challenge bullish commitments around the 0.6900 round number.

AUD/USD: Daily chart

AUD/USD: Additional levels to consider