AUD/USD climbs beyond mid-0.6400s, nearly two-week high after Chinese macro data

• AUD/USD scales higher for the second straight day and climbs to a nearly two-week top.
• The optimism over more stimulus from China and the upbeat Chinese data lifts the Aussie.
• Bets for one more Fed rate hike in 2023 to limit the USD losses and cap gains for the pair.

The AUD/USD pair attracts some buying for the second successive day on Friday and climbs to a nearly two-week high during the Asian session. Spot prices climb further beyond mid-0.6400s following the release of the mostly upbeat Chinese macro data, though the fundamental backdrop warrants some caution before positioning for any further appreciating move.

The National Bureau of Statistics (NBS) reported China’s August Retail Sales grew by 4.6% over the twelve months through August as compared to 3.0% expected and 2.5% previous. Adding to this, the country’s Industrial Production also surpassed estimates and increased by a 4.5% YoY rate in August as compared to July's 3.7% rise. This comes on top of more stimulus measures from China and remains supportive of the upbeat market mood, which is seen undermining the safe-haven US Dollar (USD) and lending some support to the risk-sensitive Australian Dollar (AUD).

In fact, The People’s Bank of China (PBoC) lowered its Reserve Requirement Ratio for much of the banking system by 25 bps – its second such move this year. This is expected to release more liquidity and potentially shore up growth in the world's second-largest economy. Any meaningful USD corrective decline from over a six-month high touched on Thursday, however, seems limited in the wake of growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance. This, in turn, might hold back bulls from placing aggressive bets around the AUD/USD pair.

Market participants seem convinced that the US central bank will keep interest rates higher for longer and have been pricing in one more 25 bps lift-off by the end of this year. The bets were lifted by Thursday's resilient US macro data, which, along with still-sticky inflation, should allow the Fed to keep rates higher for longer. The narrative remains supportive of elevated US Treasury bond yields and favours the USD bulls. This further makes it prudent to wait for strong follow-through buying before confirming that the AUD/USD pair has formed a near-term bottom.

Technical levels to watch