AUD/USD seller’s return aim for 0.6900 amid recession, Fed fears ahead of US data

• AUD/USD fades bounce off five-week low as market fears remain intact amid sluggish session.
• US data triggered US dollar pullback but fears surrounding China, recession join hawkish Fedspeak to favor pair bears.
• US Durable Goods Orders for August precede Fed Chair Powell’s speech at Jackson Hole to test bears.

AUD/USD retreats to 0.6915, following a corrective pullback from the one-month low, as risk-aversion remains intact during Wednesday’s tepid Asian session.

In doing so, the Aussie pair failed to justify downbeat US data while also portraying a cautious mood ahead of this week’s key catalysts. This includes today’s US Durable Goods Orders for July, expected 0.6% versus 2.0% prior, as well as Friday’s speech by Fed Chairman Jerome Powell at the Kansas City Fed’s symposium in Jackson Hole.

US Dollar Index (DXY) poked the yearly high during the initial Tuesday trading amid fears of recession and increasing hawkish Fed bets, as well as growing pessimism in China. However, downbeat US economics triggered the greenback’s much-needed correction.

The preliminary readings of the US S&P Global Manufacturing PMI for August eased to 51.3 versus 52.0 expected and 52.2 prior while the Services gauge plunged to 44.1 from 47.3, compared to 49.2 market forecasts. According to S&P Global, the US economy is also in trouble as the Composite PMI shrank to 45, its lowest in 27 months.

Furthermore, the US New Home Sales for July dropped to the lowest levels in six years, to 0.511M from 0.585M prior and 0.575M market forecasts. Furthermore, the US Richmond Fed Manufacturing Index for August dropped to -8.0 compared to the 0.0 previous reading.

Elsewhere, Minneapolis Fed President Neel Kashkari mentioned that the biggest fear is that we are misreading underlying inflation dynamics, per Reuters.

It should be noted that Bloomberg recently came out with an analysis portraying the Chinese yuan’s fall as another worry for the dragon nation. “The Chinese yuan’s slump to its weakest against the dollar in almost two years adds to what is already a precarious balancing act for Beijing, which is seeking ways to prop up its struggling economy without stoking financial instability,” said the piece. The same weigh on the AUD/USD prices due to the trade ties between Beijing and Canberra.

Against this backdrop, US 10-year Treasury yields rose to the highest in a month, inactive at around 3.05% by the press time, whereas Wall Street benchmarks closed with mild gains.

Moving on, a light calendar in the Asia-Pacific highlights the US data and recession woes as the key factors to watch for near-term directions. It should be noted that the fears of economic slowdown, especially in China, could keep the AUD/USD prices pressured.

Technical analysis

An upward sloping support line from mid-June, around 0.6875 by the press time, restricts the short-term AUD/USD downside. The recovery moves, however, need validation from the 100-DMA and the 200-DMA, respectively around 0.6960 and 0.7115, before convincing the bulls to take entries.