AUD/USD bulls holding on as US dollar remains soft ahead of Powell speeh

• AUD/USD bulls are hanging in there following a very strong move to the upside. 
• China stimulus boosted risk sentiment and the proxy AUD.
• The Jackson Hole is now the main focus that started today. 

AUD/USD is 1% higher on the day as the US dollar continues to find sellers ahead of a keynote speech from the Federal Reserve chairman, Jerome Powell. At the time of writing, AUD/USD is trading at 0.6976 and has been moving between a low of 0.6902 and a high of 0.6991. 

The Australian and New Zealand dollars were trying to pick up on Thursday as a buoyant greenback paused for breath amid caution ahead of the US Federal Reserve's Jackson Hole conference this week. The antipodeans were supported further as China's stimulus announcement in the Tokyo session boosted risk sentiment. 

China announced a massive CNY1 trln stimulus package to help shore up the economy.  The State Council outlined a 19-point package that is mostly focused on infrastructure spending, including another CNY300 bln that state banks can invest in infrastructure projects which comes on top of another CNY300 bln that was already announced in June. This accompanied the weakest fix in the yuan vs the US dollar since August 2020. In turn, the Aussie rallied to a key target area on the hourly chart, 0.6945, and then burst through it to print highs in London of 0.6991. 

However, while the measures will help at the margin, ''we can’t help but feel that policymakers there are pushing on a string,'' analysts at Brown Brothers Harriman argued. ''Infrastructure spending is the tried and true method that has helped China muddle through in the past but we suspect it won’t be enough to truly offset the impact of Covid Zero lockdowns, persistent energy shortages from drought, and strains on the financial system from the collapsing property market.''

Meanwhile, it will soon come back to domestic data and next week will see the release of retail trade, building approvals, private sector credit and some of the building blocks for the Q2 22 national accounts. For now, however, the focus is on the Jackson Hole Economic Symposium has begun today.

All eyes on the US economy 

In the build-up to the event, there has been a plethora of US economic data that has been less inflationary, including today's first revision for the second quarter Gross Domestic Product which fell by 0.6% annualized and not by the 0.9% previously thought during the second quarter, following a 1.6% retreat in the first quarter. The market expectations in a Bloomberg survey were for a decline of 0.7%.

The first round of data that moved the needle in financial markets came in a report on Tuesday that showed US private sector activity contracted for a second-straight month in August. Then, data on Wednesday showed that new orders for US-made capital goods increased at a slower pace in July from the prior month, suggesting that business spending on equipment could struggle to rebound after contracting in the second quarter.  Due to the less inflationary data, Fed funds futures traders were pricing in a 59% chance that the Fed will hike rates by another 75 basis points at its September meeting, and a 41% probability of a 50 basis points increase.

Fed Chair Powell gives his keynote speech tomorrow at 10 AM ET.  In the past, the Fed has used this symposium to announce or hint at policy shifts.  However, analysts at Brown Brothers Harriman argue that this year is very different and they do not think the Fed will paint itself into a corner ahead of the September 20-21 FOMC meeting.  

''Rather, we expect Powell to try and manage market expectations by maintaining the Fed’s hawkish tone.  Between now and the September 20-21 FOMC meeting, we will get all the major August data and some of the early September surveys such as the preliminary S&P Global PMI readings and regional Fed surveys.  The Fed will also have a better idea then of how the economy is doing in Q3.''