AUD/USD flirts with multi-day peak, around mid-0.6400s amid modest USD downtick

The AUD/USD pair attracts some dip-buying following the overnight pullback from a multi-day peak and sticks to its gains through the Asian session on Wednesday. Spot prices currently trade around mid-0.6400s, up just over 0.40% for the day, and look to build on the recent recovery from the lowest level since November 2022 touched last Thursday amid a mildly softer tone surrounding the US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, erodes a part of the previous day's gains to a more than two-month high and is pressured by retreating US Treasury bond yields. Apart from this, a generally positive tone around the US equity futures prompts some profit-taking around the safe-haven buck and benefits the risk-sensitive Australian Dollar (AUD). Against the backdrop of hopes for more stimulus from China, signs of easing US-China trade tensions lead to a slight improvement in the global risk sentiment.

It is worth recalling that the US Commerce Department's Bureau of Industry and Security (BIS) announced on Monday that it will remove 27 Chinese entities from its Unverified List. China welcomed the move and said that it is conducive to normal trade between the two nations. This comes ahead of US Secretary of Commerce Gina Raimondo's visit to China on August 27-30, for meetings with senior Chinese officials and US business leaders. That said, concerns over a Chinese economic slowdown keep a lid on the optimism and the China-proxy Aussie.

A smaller rate cut by the People’s Bank of China (PBoC) signalled limited policy support for the economy, despite a deepening crisis in the domestic property sector, and did little to ease worries about the worsening economic conditions. This, along with weaker Australian PMI prints, might hold back traders from placing aggressive bullish bets around the AUD/USD pair. The latest survey from Judo Bank revealed that the manufacturing sector in Australia continued to contract in August and services activity shrank at the fastest pace in 19 months.

Furthermore, growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance and keep interest rates higher for longer favours the USD bulls, which might further contribute to capping the AUD/USD pair. Market participants now look to the release of the flash US PMIs for a fresh impetus later during the early North American session. The focus, however, will remain on the Jackson Hole Symposium, where comments by Fed Chair Jerome Powell might provide cues about the future rate hike path and drive the USD demand in the near term.

Technical levels to watch