AUD/USD snaps three-day downtrend above 0.6500 as RBA’s Lowe defends hawks ahead of US data

• AUD/USD prints the first daily gains in four, sticks to mild gains of late.
• RBA Governor Lowe cites the need for further, gradual policy tightening.
• China news, reassessment of Fed talks and US inflation data trigger Aussie pair’s corrective bounce.
• US mid-tier inflation clues eyed for clear directions.

AUD/USD edges higher past 0.6500 during the first positive day in four, up 0.20% intraday near 0.6530 amid early Friday morning in Europe. In doing so, the Aussie pair justifies the recent hawkish bias about the Reserve Bank of Australia (RBA), as well as the hopes of the Federal Reserve’s (Fed) policy pivot, as market players brace for mid-tier US inflation clues. Also, the cautious optimism about China, Australia’s biggest customer, adds strength to the Aussie pair’s corrective bounce.

“It is possible that some further tightening of monetary policy will be required to ensure that inflation returns to target within a reasonable timeframe,” said RBA Governor Philip Lowe while speaking before the House of Representatives Standing Committee on Economics per Reuters. The policymaker also refrained from cheering the victory on inflation and defended the latest pause in the rate hike trajectory by stating that the successive rate lifts could result in higher unemployment.

On the other hand, unimpressive US inflation data allowed the Fed policymakers to cheer the victory over price pressure but the traders need more details to welcome the policy pivot concerns.

That said, the US Consumer Price Index (CPI) for July matched market forecasts to reprint 0.2% MoM figures. However, the yearly CPI improved slower-than-expected 3.3% to 3.2% YoY for the said month, versus 3.0% previous readings, marking the first acceleration in the annual rate in 13 months. Following the data, a slew of policymakers from the Federal Reserve (Fed) crossed wires while conveying the US central bank’s hard-earned victory on inflation. However, their tones appeared less convincing for doves and joined the risk-negative concerns about China to fuel the US Treasury bond yields afterward.

Elsewhere, China allows the provincial-level governments to raise about 1 trillion Yuan ($139 billion) via bond sales to repay the debt of local-government financing vehicles (LGFV) and other off-balance sheet issuers, per Bloomberg. The news justifies the market’s confidence in the Chinese policymakers’ capacity to avoid recession and weigh on the US Dollar, via a slightly positive market mood.

However, the fears of witnessing more geopolitical tussles between the West and China, mainly due to the US restriction on investment in China technology companies and the likely repeat of the measures by the UK and European Union, weighed on the sentiment and check the AUD/USD buyers. Furthermore, cautious mood ahead of the second-tier US inflation clues also prods the Aussie pair’s recovery moves after it reversed from a one-week high the previous day.

Among the key data, the US Producer Price Index (PPI) for July, the preliminary readings of the University of Michigan’s (UoM) Consumer Sentiment Index (CSI) for August and the UoM 5-Year Consumer Inflation Expectations for the said month will be important to watch for clear directions.

Technical analysis

AUD/USD reverses the previous downside break of a 10-month-old rising trend line of around 0.6550. Also acting as a short-term downside filter is an upward-sloping trend line from November 2022, close to 0.6480 at the latest.