AUD/USD manages to hold above mid-0.6300s, seems vulnerable near YTD trough

• AUD/USD remains depressed near the YTD low and is undermined by a combination of factors.
• Weaker Australian Trade Balance data and China's economic woes continue to weigh on the pair.
• The USD consolidates near a six-month high and holds back bearish traders from placing bets.

The AUD/USD pair struggles to gain any meaningful traction during the Asian session on Thursday and hovers just above its lowest level since November 2022 touched earlier this week. Spot prices currently trade around the 0.6370-0.6365 area and seem vulnerable to prolonging the recent well-established downtrend witnessed over the past two months or so.

The Australian Dollar (AUD) is undermined by weaker domestic data, which showed trade surplus shrank to $8.039 Billion in July as compared to $11.321 Billion in the previous month and $10.00 billion anticipated. Additional details revealed that Australia's Goods/Services Exports declined by 2% on a monthly basis, while Imports rose by 3% in July as compared to the 4% fall recorded in the previous month. The data, meanwhile, fails to impress bulls or lend support to the AUD/USD pair amid concerns about the worsening economic conditions in China – Australia's bigger trading partner.

The fears were further fueled by Chinese Trade Balance data for August, indicating that imports and exports fell 7.3% and 8.8% year on year, respectively, highlighting that manufacturers remain under pressure. The AUD/USD pair also reacts little to comments by the Reserve Bank of Australia (RBA) Governor Philip Lowe, reiterating the need to raise rates further if inflation becomes sticky. That said, the RBA's on-hold decision for the third straight meeting on Tuesday and lack of fresh hawkish signals now seem to have convinced that the central bank is down with the policy tightening.

The US Dollar (USD), on the other hand, is seen consolidating its recent rally to a six-week high and holding back traders from placing fresh bearish bets around the AUD/USD pair. The near-term bias, however, remains tilted in favour of the USD bulls in the wake of rising bets for one more 25 bps rate hike by the Federal Reserve (Fed) in 2023. The bets were lifted by the upbeat US ISM Services PMI on Wednesday. This remains supportive of elevated US Treasury bond yields and validates the positive outlook for the USD, suggesting that the path of least resistance for the pair is to the downside.

Technical levels to watch