AUD/USD bulls step to push the curreny into the green ahead of key jobs data

• AUD/USD bulls move in to put the Aussie into the green for the day. 
• China and recession worries flared up a flight to the US dollar. 

AUD/USD has been pressured on Tuesday after weak global economic data, particularly in China, reignited global recession fears. The safe-haven US dollar has benefitted in the forex space and it hit a one-week high while risk-friendly currencies such as the Australian dollar have taken the brunt. At 0.7027, AUD/USD is in the green by some 0.01%, after falling from a high of 0.7040 to mark a low of 0.6991 before recovering in midday US trade. 

Fears of a significant slowdown of the Chinese economy put a dampener on the commodity markets and the Australian dollar took a knock on lower demand for iron ore and other assets from China. Figures for Industrial Production, Retail Sales and fixed asset investments, as released by the National Bureau of Statistics, came in below expectations in July. Additionally, worries about a more pronounced cooling rose from a surprising rate cut by the Chinese central bank PBoC. The unexpected move gave the impression that the PBoC is alarmed about the extent of economic weakening as it tries to revive credit demand to support the COVID-hit economy after a string of weak economic data releases for July.  Australia's close trade ties with China mean traders sometimes treat its currency as a liquid proxy for China's yuan.

In the US, Treasury yields rose due to the recession worries and along with the concerns that the Federal Reserve will continue its steep interest rate hikes despite nascent signs of a slowdown in inflation. Several Fed policymakers have spoken of the need for continued rate hikes despite the lower-than-expected outcome of last week's Consumer Price Index.

Additionally, the yield curve between 2-year and 10-year Treasury notes remained inverted at minus 38.60 basis points on Tuesday. This is viewed as an indicator of an impending recession. The dollar index DXY meanwhile hit a peak of 106.94 in early European trading, recovering from the losses that were made on the back of lower-than-expected US inflation data. The index was last seen flat at 106.46.

"Fed officials have no choice but to sound tough in the face of a very, very tight labour market and far too high inflation," Kit Juckes, the head of FX strategy at Societe Generale argued. "It's hard to build a compelling case to sell the dollar in that world."

Meanwhile, the minutes from the Reserve Bank of Australia’s (RBA) August policy meeting showed that the Board of the central bank expected further rate hikes given inflation was far above target and the labour market at its tightest in decades. There will be more from the labour market this week where analysts at TD Securities said ''wages growth may accelerate in Q2 as firms face record labour constraints while workers may demand higher base wages with inflation at a 21-year high.'' The analysts added ''July is a seasonally strong month for job gains and we look for the unemployment rate to trend lower. Another strong labour print should give the RBA the assurance that the economy can withstand a cash rate of 3% by end-2022.''

AUD/USD technical analysis

The hourly chart has left behind a W-formation that pulled the price into the neckline before the bulls moved in again. The price would be expected to move higher to mitigate inefficiencies on the lower time frames before reaching the resistance for a test of the 0.7030s.

On the 15-min time frame, there are a few imbalances of price to the downside that could be mitigated prior to a test towards the resistance area. The neckline of the W-formation aligns with a price imbalance near 0.7012.