AUD/USD edges lower toward 0.6750 amid broad USD strength

The AUD/USD pair closed the previous week virtually unchanged and continues to have a difficult time setting its next short-term direction. Nevertheless, the broad-based USD strength on Monday seems to be weighing modestly on the pair, which was last down 0.18% on the day at 0.6753.

Chinese economy struggles to pick up momentum

The data published from China on Monday showed that the service sector lost momentum in September but the economic activity in the manufacturing sector contracted at a softer pace than expected. Commenting on the data, "China's official manufacturing PMI was stronger than expected in September but remained in contraction for the fifth straight month," noted Mitul Kotecha, Senior Emerging Markets Strategist at TD Securities (TDS).

"Whether the bounce in PMIs can be sustained will in part depend on trade talks next week, but given the plethora of structural issues to be resolved, we are not holding our breath for a comprehensive deal, Kotecha added further."

Regarding the trade dispute, the Chinese foreign minister on Monday said that the decoupling of the United States (US) and China would harm both sides and cause instability in international markets.

Later in the session, the Institue for Supply Management (ISM) Chicago's Purchasing Managers Index (PMI) and the Federal Reserve Bank of Dallas' Texas Manufacturing Survey will be the only data releases from the US. Meanwhile, the US Dollar Index rose to its highest level since April of 2017 above 98.40 boosted by the broad-based selling pressure surrounding the EUR.

More importantly, the Reserve Bank of Australia (RBA) is expected to cut its policy rate by 25 basis points to 0.75% on Tuesday. Although a rate cut is largely priced in the markets, a dovish outlook in the policy statement could put the AUD under a renewed selling pressure.

Technical levels to watch for