The Australian dollar gained some ground against the US dollar on Wednesday, recovering from a 10-week low of 0.6405 reached on Tuesday. The AUD/USD pair rose by 0.30% to trade at 0.6450 as of 06:08 GMT, as the US dollar eased ahead of the release of the preliminary PMI data for August.
Aussie benefits from China-linked optimism and softer bond yields
The Australian dollar, which is often seen as a proxy for China’s economic performance, found some support from the signs of improvement in the US-China relations. According to the reports, US Commerce Secretary Gina Raimondo will visit Beijing next week to discuss trade and economic issues with Chinese officials. This follows the US decision to remove 27 Chinese entities from its Unverified List, lifting sanctions from those firms and raising hopes of easing diplomatic tensions.
Another factor that boosted the Aussie was the pullback in the US Treasury bond yields, which reduced the appeal of the greenback. The yield on the benchmark 10-year bond dropped from the highest level since late 2007 to 4.31%, as investors awaited more clues on the Federal Reserve’s monetary policy stance from the annual Jackson Hole Symposium event, scheduled for August 24–26.
Australia’s PMI data disappoints, but US data may offer some relief
The AUD/USD pair’s upside was capped by the disappointing results of Australia’s preliminary PMI data for August, which showed a contraction in both manufacturing and services sectors amid the prolonged lockdowns and virus outbreaks. The S&P Global Manufacturing PMI fell to 51.7 from 56.9 in July, while the Services PMI plunged to 43.3 from 44.2, indicating a deepening recession in the economy.
However, the pair may find some relief from the upbeat US data, which could signal a robust recovery in the world’s largest economy. The S&P Global Manufacturing PMI is expected to rise to 63.2 from 63.1 in July, while the Services PMI is forecasted to increase to 59.8 from 59.4. The Existing Home Sales for July are also projected to improve to 5.83 million from 5.86 million in June.
Technical analysis: AUD/USD faces resistance at 0.6460
The AUD/USD pair is trading above the weekly ascending support line, which is currently near 0.6405, and has also moved out of the oversold territory on the daily RSI (14). This suggests that the pair may have some room for further recovery in the near term.
However, the pair faces a strong resistance at 0.6460, which is the low of May and also coincides with a downward-sloping trendline from late June. A break above this level could open the door for a test of 0.6500, followed by 0.6540.
On the flip side, if the pair fails to sustain above 0.6405, it could resume its downtrend and target 0.6370, which is the low of March. A breach below this level could expose 0.6300, which is a psychological level and also a horizontal support line.
