AUD/USD surrenders modest intraday gains, seems vulnerable near 0.6400 mark

• AUD/USD attracts some intraday sellers on Monday and retreats to the daily low in the last hour.
• Looming recession risks overshadow China’s new measures and act as a headwind for the major.
• Bets for one more Fed rate hike in 2023 limit the USD losses and contribute to capping the upside.

The AUD/USD pair struggles to preserve its modest intraday gains and retreats to the lower end of its daily range during the early part of the European session on Monday. Spot prices, however, manage to hold above the 0.6400 round figure, though the fundamental backdrop seems tilted in favour of bearish traders and support prospects for the resumption of a multi-week-old downtrend from the July swing high.

China rolled out new measures over the weekend to draw investors back into its battered stock markets, which, along with the better-than-expected domestic data, provided a modest lift to the Australian Dollar (AUD) on the first day of a new week. It is worth recalling that China's finance ministry said in a brief statement on Sunday that the stamp duty levied on stock trading will drop from 0.1% to 0.05% as of August 28, marking the first reduction since 2008. Furthermore, the Australian Bureau of Statistics (ABS) reported that Retail Sales – a measure of the country’s consumer spending – rose 0.5% in July against consensus estimates for a 0.3% increase and a 0.8% decline in the previous month.

Apart from this, a positive tone around the equity markets drags the safe-haven US Dollar (USD) away from its highest level since early June touched on Friday and offers additional support to the AUD/USD pair. The corrective USD decline, however, remains limited in the wake of rising bets for further policy tightening by the Federal Reserve (Fed). In fact, the markets have been pricing in the possibility of one more 25 bps rate hike by the end of this year and the expectations were reaffirmed by Fed Chair Jerome Powell's hawkish remarks on Friday. In a keynote address at the Jackson Hole Symposium on Friday, Powell said that the Fed may need to raise rates further to cool still-too-high inflation.

Furthermore, growing concerns about the worsening economic conditions in China and looming recession risks keep a lid on the optimism in the markets. Apart from this, expectations for another on-hold rate decision by the Reserve Bank of Australia (RBA) in September contribute to capping the AUD/USD pair and attracting fresh sellers at higher levels. This, in turn, suggests that the path of least resistance for spot prices is to the downside, though bears might still need to wait for acceptance below the 0.6400 mark before placing fresh bets in the absence of any relevant market-moving economic releases from the US.

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