AUD/USD flirts with daily low around 0.6800 mark, weaker USD to help limit losses

• AUD/USD turns lower for the third straight day, though the downside seems cushioned.
• China’s economic woes turn out to be a key factor undermining the risk-sensitive Aussie.
• Hope for more stimulus from China and a bearish USD should limit losses for the major.

The AUD/USD pair attracts some sellers following an intraday uptick to the 0.6835 region on Tuesday and drifts into negative territory for the third successive day. Spot prices drop to a fresh daily low during the early European session and currently trade just above the 0.6800 round-figure mark.

Despite the hawkish minutes of the July Reserve Bank of Australia (RBA) policy meeting, the Australian Dollar (AUD) struggles to gain any meaningful traction in the wake of concerns over slowing economic growth in China. It is worth recalling that data released on Monday showed that the economic growth in China decelerated substantially in the second quarter and Retail sales - a gauge of consumption - slowed sharply in June. This, in turn, is seen as a key factor weighing on the China-proxy Aussie, though the possibility of more stimulus measures from China could limit losses for the AUD/USD pair.

The National Development and Reform Commission (NDRC) - China's top economic planner - pledged that it would roll out policies to restore and expand consumption without delay as consumers' purchasing power remained weak. Apart from this, the bearish sentiment surrounding the US Dollar (USD) warrants some caution before placing aggressive bearish bets around the AUD/USD pair. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near its lowest level since April 2022 in the wake of expectations of a less hawkish Federal Reserve (Fed).

Market participants seem convinced that the US central bank will end its policy-tightening campaign and keep interest rates steady for the rest of the year following the largely priced-in 25 bps lift-off in July. This, in turn, keeps the USD bulls on the defensive and makes it prudent to wait for strong follow-through selling to confirm that the AUD/USD pair has formed a bearish double-top pattern near the 0.6900 mark. Market participants now look forward to the US economic docket - featuring the release of monthly Retail Sales and Industrial Production figures - for short-term trading opportunities.

Technical levels to watch