AUD/USD retraces from daily highs, slides to the 0.6870 area

• AUD/USD hit a daily low of around 0.6929 but tumbled as sentiment shifted sour.
• Global equities dropped as investors brace for Fed’s Jerome Powell speech on Friday.
• China’s PBoC’s rate cut lifted the AUD/USD just above the 0.6900 figure before dropping towards daily lows.

The AUD/USD slightly declines in the North American session, amidst a risk-off tone in the market, with global equities sliding, as traders brace for Fed Chair Jerome Powell’s speech on Friday. Reflection of the aforementioned is global equities tumbling, led by US stocks, down between 1.40% and 2.30%.

The AUD/USD is trading at 0.6875 below its opening price by 0.02%, after hitting a daily high of 0.6929, just above the 50-day EMA. Nevertheless, the major softened and dropped from the 0.6900 figure due to broad US dollar strength.

Meantime, the US Dollar Index, a gauge of the buck’s value vs. a basket of peers, advances almost 0.60%, up at 108.729, closing to the YTD high at 10.9.294.

In the meantime, a lack of economic data keeps traders focused on the Jackson Hole event. Worth noting that last week’s Fed’s policymakers continued expressing that although inflation data is encouraging, the central bank is far from declaring victory. Even the most dovish, like Kansas City Fed’s Esther George, expressed that additional rate hikes are coming, though she mentioned that the size of increases is open for discussions.

At the time of writing, money market futures STIRs show that investors have fully priced in a 50 bps rate hike by the Federal Reserve, while odds of a 75 bps increase lie at 82.8%.

Aside from this, early in the Asian session, the People’s Bank of China (PBoC) cut its benchmark lending rate by 5 bps from 3.70% to 3.65% to stimulate the economy. The AUD/USD jumped towards 0.6906 on China’s decision, which benefits the Australian economy, as China is one of its largest trading partners.

What to watch

The Australian economic docket will feature the Australian S&P Global PMIs for the August readings, estimated to decrease, except for the Services PMI. On the US side, the calendar will release the S&P Global PMIs, a prelude for next week’s ISM PMI figures, alongside Fed speakers, led by Minnesota Fed’s Neil Kashkari on Tuesday, and the beginning of the Jackson Hole Economic Symposium by Wednesday.

AUD/USD Price Analysis: Technical outlook

From a technical perspective, the AUD/USD pierced the 50-day EMA around 0.6916 but dropped, threatening to turn negative in the day, exacerbating a fall towards the five-month-old downslope trendline, previously a resistance area shifted support around the 0.6800 figure. A daily close below last week’s low at 0.6859 will pave the way for further losses.