AUD/USD rebounds firmly to near 0.6860 on upbeat China PMIs, RBA in focus

• AUD/USD has defended the critical support of 0.6860 on better China’s PMI data.
• The show-stopper event for the UD/USD pair will be the RBA policy.
• A third consecutive 50 bps rate hike is expected from the RBA.

The AUD/USD pair has picked significant bids around 0.6860 after the release of upbeat China data. The NBS Manufacturing PMI has landed at 49.4, higher than the forecasts of 49.2 and the prior release of 49. However, the Non-Manufacturing data has released lower at 52.6 vs. the prior release of 53.8 but remained higher than the consensus of 52.2. The economic data is considered a leading indicator to gauge the extent of economic activities in China.

Broadly, investors’ focus will remain on the interest rate decision by the Reserve Bank of Australia (RBA), which is due next week. Scrutiny of ongoing price pressures in the Australian economy indicates that RBA Governor Philip Lowe will announce the third consecutive 50 basis points (bps) interest rate hike.

An occurrence of the same will escalate the Official Cash Rate (OCR) to 2.35%. As the Australian Consumer Price Index (CPI) was recorded at 6.1% for the second quarter, more restrictive measures are highly likely.

Meanwhile, the US dollar index (DXY) has bounced back firmly after picking bids around its immediate support of 108.70 in the early Tokyo session. The DXY is expected to recapture Tuesday’s high at 109.11 as risk sentiment is not lucrative for the risk-perceived assets.

This week, the US Nonfarm Payrolls (NFP) event will hog the limelight. As the US economy is operating at full-employment levels, a satisfactory addition is expected in the US labor market by 300k. Also, the Unemployment Rate is seen as stable at 3.5%.