AUD/USD appears vulnerable near 0.6850 amid risk-aversion, China/US data eyed

• AUD/USD holds lower grounds near six-week low after recalling the bears the previous day.
• Headlines surrounding China, Taiwan join hawkish Fedspeak, strong US data to challenge early-week optimism.
• Downbeat Aussie Building Permits for July also facilitated seller’s return.
• China’s official PMIs for August will be crucial ahead of US ADP, NFP statistics.

AUD/USD remains pressured around 0.6860, after calling in bears the previous day, as traders await activity data from the key customer China during Wednesday’s Asian session. In doing so, the Aussie pair also takes clues from the risk-off mood, as well as justifies the cautious sentiment before important US employment data is released.

Having witnessed a mildly positive start to the day, AUD/USD returned to the seller’s radar as fears of the Sino-American war escalated as Taiwan fired the first warning shots at Chinese drones. On the same line was the Wall Street Journal’s news stating that the US Army grounds entire fleet of Boeing-made Chinook helicopters.

Also weighing on the quote were the strong US data releases and hawkish Fedspeak that propelled the bets on the Federal Reserve’s (Fed) 75 basis points of a rate hike in September.

US Consumer Confidence for August improved to 103.2 versus 95.3 in July, per the Conference Board’s (CB) latest survey details. Also, US Housing Price Index (HPI) rose by 0.1% MoM in June compared to May's increase of 1.3% and market expectation of 1.1%. Further, the S&P/Case-Shiller Home Price Indices eased to 18.6% YoY during the stated month versus 19.5% forecast and 20.5% previous readings. It should be noted that the US JOLTS Job Openings grew to 11.239M in July versus 10.475M expected and 11.04M prior (revised from 10.698M).

Following the data, Richmond Federal Reserve Bank President Thomas Barkin said, "I don't expect inflation to come down predictably." On the same line was Atlanta Fed President Raphael Bostic who said, “Slowing inflation data 'may give us reason' to slow interest rate hikes.” Recently, New York Fed President John Williams said, per the WSJ, “We are not at restrictive policy yet.” The policymaker also added, “We need to get interest rates higher than longer run a neutral level.”

At home, Australia’s Building Permits for July declined to -17.2% versus -2.0% market forecasts and -0.6% revised prior.

Against this backdrop, the US 10-year Treasury yields rose to the highest levels in two months and Wall Street closed in the red while the US dollar regained upside momentum.

Looking forward, AUD/USD traders may bear the burden of the sour sentiment to stay depressed. However, any surprise positives from China’s NBS Manufacturing PMI for August, expected 49.2 versus 49.0 prior, might offer an intermediate rebound to the pair. After that, the US ADP Employment Change for August, the early signal for Friday’s US Nonfarm Payrolls (NFP), expected 200K versus 128K prior, will also be important to watch for fresh impulse.

Also read: ADP Jobs Preview: Three reasons to expect the data to drive the dollar higher

Technical analysis

A clear downside break of the upward sloping support line from the mid-June, now resistance around 0.6870, directs AUD/USD bears towards the early July’s bottom surrounding 0.6760.