AUD/USD defends 0.6900 after the biggest daily fall in a month on US-China tussles, Fedspeak

• AUD/USD holds lower ground as bears take a breather following the heavy downside move.
• Sino-American jitters over Taiwan join hawkish comments from Fed policymakers to weigh on the quote.
• RBA’s 0.50% rate hike couldn’t please bulls as shift in language in Rate Statement gained bear’s attention.
• China’s Caixin Services PMI, US ISM Services PMI may entertain traders but risk catalysts are more important.

AUD/USD remains pressured around 0.6920, after posting the biggest daily slump in a month, as traders seek fresh clues during Wednesday’s initial Asian session.

That said, the Aussie pair’s latest fall could be linked to the escalated geopolitical tension between the US and China, as well as hawkish comments from the Fed policymakers. Further, the Reserve Bank of Australia’s (RBA) failure to lure the bulls, despite the fourth rate hike, also contributed to the AUD/USD pair’s weakness.

US House Speaker Nancy Pelosi’s visit to Taiwan, despite China’s multiple warnings, raised fears that the tussles among the world’s top-two economies will have more negative consequences for the world amid recession fears. “US House of Representatives Speaker Nancy Pelosi arrived in Taiwan late on Tuesday on a trip she said shows an unwavering American commitment to the Chinese-claimed self-ruled island, but China condemned the highest-level U.S. visit in 25 years as a threat to peace and stability in the Taiwan Strait,” said Reuters.

Other than Taiwan, talks of likely US restrictions on the chip-making machinery’s exports to China also magnified the Sino-American tussles. It’s worth noting that Beijing’s policymakers also showed a lack of confidence in this year’s Gross Domestic Product (GDP) and weighed on the AUD/USD prices, due to the strong China-Australia trade ties.

At home, the RBA matched the market’s expectations of announcing 50 basis points (bps) rate hike, the fourth in 2022, while inflating the benchmark rate to 1.85%. However, the RBA Statement that says, “The central bank is not on the pre-set path in normalizing rates,” appeared to have lured the AUD/USD bears.

Elsewhere, San Francisco Fed President Mary Daly said on Tuesday that she is looking for incoming data to decide if they can downshift the rate hikes or continues at the current pace, as reported by Reuters. However, Chicago Fed President Charles Evans showed support for a 50 basis points (bps) rate hike for the September policy meeting if inflation does not improve, as reported by Reuters. Furthermore, Cleveland Fed President Loretta Mester, on the other hand, said she does not think the country is suffering a recession, adding that the labor market is in great shape. On inflation, however, she noted that it has not decreased "at all."

In addition to the aforementioned catalysts, the risk-off mood and firmer US Treasury yields also underpinned the US Dollar Index's rebound from the monthly low and drowned the AUD/USD prices. To portray the mood, the Wall Street benchmarks posted losses while the US 10-year Treasury yields rose to 2.75% at the latest.

Moving on, AUD/USD traders should pay attention to China’s Caixin Services PMI and US ISM Services PMI for July for fresh impulse. However, major attention will be given to the risk catalysts, mainly concerning China and recession, for fresh impulse.

Technical analysis

A successful downside break of the three-week-old ascending trend line support, now resistance around 0.6975, directs AUD/USD prices towards the 21-DMA surrounding 0.6880 by the press time.