AUD/USD consolidates above 0.7300 as gains in equities battle US dollar strength

• AUD/USD keeps pullback from weekly lows, manages to stay beyond 2019 top despite heavy declines.
• The Aussie economy officially enters recession as GDP marked record contraction on QoQ.
• US dollar index recovers for two days despite downbeat ADP report challenging the bulls.
• Second-tier activity numbers from home will precede trade numbers and Chinese Caixin Services PMI.

AUD/USD retraces from a one-week low of 0.7305 while taking rounds to 0.7335 at the start of Thursday’s Asian session. The aussie pair dropped heavily the previous day after Aussie GDP disappointed the bulls. Though, the gains in global equities recently offered the floor to the quote.

Hopes of stimulus favor the bulls…

Australia marked the all-time high contraction in the quarterly GDP figures with a -7.0% mark versus the -6.0% forecast and -0.3% prior. With this, the RBA’s pledge to do whatever it takes regains market attention after the coronavirus (COVID-19) wave 2.0 hit the economy hard. On the same line, policymakers from the RBNZ, BOJ, Fed and the BOE have shown their preparedness to propel the money supply and are waiting for the triggers.

Not only the monetary policy easing but the fiscal help is also on the way. The latest communications from the US Treasury Secretary Steve Mnuchin and White House Adviser Larry Kudlow suggest the American policymakers are finally talking about the stimulus and have a $1.5 trillion level on sight. The figures are near to the opposition Democratic Party’s latest demands that the ruling Republicans, including President Donald Trump, ignored.

On the other hand, the US ADP Employment Change slipped below the optimistic 950K forecast to linger in a half. The same trimmed the initial gains of the US dollar but was doubted to have any major negative impact on Friday’s Nonfarm Payrolls (NFP) considering the latest inability to properly forecast the official job figures.

Elsewhere, the US-China tussle continues with America’s recently strong ties with Taiwan irritating Beijing off-late. It should also be noted that the dragon nation has rolled out sever trade punitive measures over Australia after it showed readiness to back investigations on the COVID-19 breakout.

Looking forward, activity numbers from the AiG and Commonwealth Bank will offer immediate direction to the pair ahead of July month’s trade numbers that are likely to mark downbeat outcome and recall the sellers. The anticipated declines may gain additional strength if China’s Caixin Services PMI also matches the 50.4 compared to 54.1 prior. Even so, the risk catalysts will be the key to follow.

Technical analysis

A one-month-old ascending trend line, at 0.7310 now, offers immediate support ahead of the year 2019 top surrounding 0.7300 and the early August highs surrounding 0.7280/75. Meanwhile, bulls are less likely to enter unless AUD/USD prices cross a six-month-old resistance line that currently stands near 0.7415.