AUD/USD bears poke 0.6700 around yearly low on downbeat Aussie/China data, Fed optimism

• AUD/USD licks its wounds at the lowest levels in two months.
• Australia’s Q2 GDP came in mixed, China trade data disappoints.
• Hawkish Fed bets, pessimism surrounding economic transition favor bears.
• Second-tier US data, Fedspeak will be important for fresh impulse ahead of RBA’s Lowe.

AUD/USD struggles to defend the 0.6700 intraday loss heading into Wednesday’s European session as risk-aversion joins softer data from Australia and China. Also exerting downside pressure on the Aussie pair are the hawkish Fed bets.

Although Australia’s second quarter (Q2) Gross Domestic Product rose to 3.6% YoY versus 3.5% market consensus and 3.3% prior, softer QoQ prints of 0.9% compared to 1.0% expected and 0.8% previous readings weighed on the AUD/USD prices. In doing so, the Aussie pair ignored price-positive comments from Australia’s Treasurer Jim Chalmers who said, “There are still significant reasons to be optimistic about the economy.”

That said, “China's exports growth weakened in August, as surging inflation crippled overseas demand and fresh COVID curbs and heatwaves disrupted production, reviving downside risks for the economy,” per Reuters. The news also mentioned that the exports rose 7.1% in August from a year earlier, slowing from an 18.0% gain in July, official customs data showed on Wednesday. The reading missed analysts' expectations for a 12.8% increase.

On the other hand, the US Treasury yields rally to a fresh multi-day high to propel the US Dollar Index (DXY) towards renewing the two-decade top. The same joins hawkish Fed bets to weigh on the market sentiment and weigh on the AUD/USD prices. That said, the Fed Fund Futures print 75% chance of a 0.75% rate hike in September while the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Amid these plays, S&P 500 Futures that drops to the fresh low in seven weeks, down 0.55% intraday around 3,890 at the latest.

Looking forward, the monthly prints of the US trade balance and Fed Beige Book updates could entertain AUD/USD traders ahead of early Thursday’s speech from the Reserve Bank of Australia (RBA) Governor Philip Lowe. However, major attention will be given to the various Fed speakers scheduled for public appearances in the next two days, including Fed Chairman Jerome Powell.

Technical analysis

Nearly oversold RSI conditions test AUD/USD bears near the yearly low marked in July, close to 0.6680. Even so, a one-week-old descending resistance line, around 0.6805 by the press time, challenges the recovery moves.