AUD/USD advances back closer to mid-0.6500s, traders keenly await US CPI report

• AUD/USD regains some positive traction on Thursday, albeit lacks follow-through.
• China’s economic woes hold back bulls from placing fresh bets around the major.
• Bets for more Fed rate hikes underpin the USD and contribute to capping the upside.
• Traders might also prefer to wait on the sidelines ahead of the crucial US CPI report.

The AUD/USD pair attracts fresh buying during the Asian session on Thursday and for now, seems to have snapped a two-day losing streak. Spot prices currently trade around the 0.6540 region, up over 0.20% for the day, though remain well within the striking distance of the lowest level since early June touched on Tuesday.

Hopes for additional stimulus measures from China turn out to be a key factor benefiting antipodean currencies, including the Australian Dollar (AUD). The US Dollar (USD), on the other hand, struggles to gain any meaningful traction as traders seem reluctant to place aggressive bets ahead of the crucial US consumer inflation figures, due later today. This, in turn, acts as a tailwind for the AUD/USD pair and remains supportive of the intraday uptick.

That said, concerns about the worsening economic conditions in China, fueled by the incoming weaker macro data, might keep a lid on the China-proxy Aussie. It is worth recalling that Chinese inflation figures released on Wednesday showed that consumer prices declined for the first time since February 2021, while the Producer Price Index (PPI) fell for the 10th consecutive month in July. This was seen as another sign that domestic demand is weakening.

Apart from this, weaker Chinese trade data on Tuesday raised questions about the pace of post-pandemic recovery in the world's second-largest economy. Furthermore, expectations that the Federal Reserve (Fed) will stick to its hawkish stance and keep interest rates higher for longer should act as a tailwind for the USD, which might contribute to capping the AUD/USD pair. This warrants caution before positioning for any further appreciating move.

Hence, the focus will remain glued to the US CPI report, which might offer fresh cues about the Fed's future rate hike path. The outlook, in turn, will play a key role in influencing the USD price dynamics and help determine the next leg of a directional move for the AUD/USD pair. Meanwhile, the recent slide below the 0.6600 mark confirmed a bearish double-top breakdown and suggests that the path of least resistance for spot prices is to the downside.

Technical levels to watch