AUD/USD bears attack 0.6900 support as hawkish Fed policymakers favor DXY

• AUD/USD stays defensive around two-week low, after four-day downtrend.
• Fedspeak, firmer US data underpins DXY run-up to refresh monthly high.
• Downbeat Aussie Employment Change, fears surrounding China also favor bears.
• Light calendar at home and abroad keeps risk catalysts in the driver’s seat.

AUD/USD remains depressed at around 0.6910 during Friday’s initial Asian session, after refreshing a fortnight low during the four-day downtrend. That said, the Aussie pair’s latest weakness could be linked to the broad US dollar strength, as well as downbeat catalysts surrounding Australia and China, due to strong Aussie-China trade ties.

The greenback’s gauge versus the six major currencies, namely the US Dollar Index (DXY), rose to the highest levels in one month during the previous day as price-positive numbers from Philadelphia Fed Manufacturing Survey and the weekly Initial Jobless Claims rejected the US recession fears. The activity gauge rallied to 6.2 for August versus -5 expected and -12.3 prior while the weekly jobless claims dropped to 250K, below 265K market consensus and 252K revised prior.

In addition to the upbeat US data, hawkish Fedspeak also favored the DXY bulls. San Francisco Fed President Mary Daly mentioned that they (Fed) will continue to raise the rates to "right-size it." The policymaker added that either 50 basis points or a 75 basis points hike would be appropriate while signaling the move for the September rate decision. However, Minneapolis Federal Reserve Neel Kashkari mentioned that, per Reuters, he does not believe the county is currently in a recession. Further, the all-time hawk St. Louis Fed President James Bullard said he is leaning towards another 75 bps rate hike in September.

Elsewhere, economic fears surrounding China and Europe add strength to the US dollar’s safe-haven demand, as well as exert downside pressure on the AUD/USD prices. Goldman Sachs and Nomura both cut the dragon nation’s growth forecasts after witnessing the latest jump in the covid numbers. Also negatively impacting the Chinese economy are the doubts over the People’s Bank of China’s (PBOC) capacity to tame recession woes. Additionally, comments from the US Trade Representative’s office stating, “Early this autumn, the US and Taiwan will begin formal negotiations on a trade initiative,” seem to renew the fears of the US-China tussle and also roil the mood.

“The economic outlook for Germany, Europe's largest economy, is gloomy due to energy price rises and supply chain disruptions,” the German Finance Ministry said in its August monthly report, per Reuters.

It should be noted that Australia’s headline Employment Change surprised markets with a slump to -40.9K for July versus 25K expected and 88.4K prior while Unemployment Rate eased to 3.4% versus 3.5% expected and prior. Previously, Australia’s second quarter (Q2) Wage Price Index (Q2) also eased below market forecasts and marked downbeat real growth due to high inflation in Canberra.

Against this backdrop, Wall Street closed mixed while the US 10-year Treasury yields retreated from their monthly high.

Looking forward, AUD/USD traders should keep their eyes on the risk catalysts amid a light calendar.

Technical analysis

50-DMA joins multiple levels marked since early July to restrict AUD/USD downside around 0.6900, a break of which could extend the latest south-run towards 0.6760 before highlighting the yearly low of 0.6678 to the bears. Alternatively, corrective pullback remains elusive until crossing one-month-old previous support around 0.6890.