AUD/USD jumps to over one-week high amid risk-on, broad-based USD weakness

• AUD/USD regains strong positive traction on Thursday and jumps to over a one-week high.
• China’s stimulus measures boost investors’ confidence and benefit the risk-sensitive aussie.
• The risk-on impulse further weighs on the safe-haven USD and provides an additional lift.
• Hawkish Fed expectations might limit the USD losses and cap any further upside for the pair.

The AUD/USD pair catches fresh bids on Thursday and builds on this week's bounce from the 0.6860-0.6855 support zone. The intraday positive move prolongs through the early part of the European session and pushes spot prices to over a one-week high, around the 0.6980-0.6985 region.

Investors turned optimistic after China earlier this Thursday announced a stimulus package worth one trillion yuan ($146 billion) - roughly 1% of its overall GDP - to shore up its economy. This is evident from a generally positive tone around the equity markets, which prompts fresh selling around the safe-haven US dollar and benefits the risk-sensitive aussie.

It, however, remains to be seen if bulls are able to capitalize on the move or if the AUD/USD pair meets with a fresh supply at higher levels amid worries about a global economic downturn. Moreover, firming expectations that the Fed will stick to its policy tightening path should limit any deeper USD pullback and warrants some caution for aggressive traders.

In fact, the markets are pricing in at least a 50 bps rate hike at the September FOMC policy meeting and the bets were reaffirmed by the recent hawkish remarks by several Fed officials. This remains supportive of elevated US Treasury bond yields, which, in turn, supports prospects for the emergence of some USD dip-buying and should cap the AUD/USD pair.

Market participants now look forward to the US economic docket - featuring the release of the Prelim, or the second estimate of Q2 GDP print and Weekly Initial Jobless Claims. This, along with the US bond yields and the broader market risk sentiment, might influence the USD price dynamics and provide some impetus to the AUD/USD pair.

The focus, however, will remain on Fed Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday. Investors will look for fresh clues about the possibility of a supersized 75 bps Fed rate hike move in September. This will play a key role in driving the USD demand and help determine the near-term trajectory for the AUD/USD pair.

Technical levels to watch