AUD/USD ignores downbeat Australia PMI to edge higher past 0.6400 amid US-China trade optimism

• AUD/USD stays defensive while keeping three-day rebound from yearly low.
• Australia’s S&P Global PMIs for August came in softer but headlines suggesting improvement in US-China ties help Aussie buyers.
• Market’s preparations for top-tier US data/events also underpin AUD/USD recovery.
• US PMI, Fed talks eyed ahead of Friday’s Jackson Hole speeches.

AUD/USD holds onto the previous gradual recovery despite witnessing softer Australian activity data for August, picking up bids to 0.6430 amid early Wednesday. That said, the recently upbeat headlines suggesting an improvement in the US-China ties seem to underpin the Aussie pair’s cautious rebound from the yearly low since Friday. Apart from that, the market’s preparations for the top-tier US data/events and the annual Jackson Hole event also allow the risk-barometer pair to edge higher.

Australia’s preliminary readings of the S&P Global Manufacturing PMI eases to 49.4 from 49.6 expected and prior while the Services counterpart drops to 46.7 from 47.9 market forecasts and previous readings. With this, the first reading of the S&P Global Composite PMI weakens to 47.1 for the said month from 48.2 marked in July.

Elsewhere, the US Commerce Department mentioned Commerce Secretary Gina Raimondo’s meeting with the Chinese Ambassador, as well as the Vice Foreign Minister, Xie Feng. The news states that the policymakers had a ‘productive discussion’ ahead of her trip to China. Earlier in the week, the US Commerce Department’s Bureau of Industry and Security (BIS) also removed 27 Chinese entities from its Unverified List, removing sanctions from those entities and flagged hopes of improving US-China ties.

While the hopes of the US-China ties put a floor under the AUD/USD price, mixed concerns about the economic recovery in China and recently firmer US Dollar cap the Aussie pair’s upside momentum.

On Tuesday, US Dollar Index (DXY) prods the 10-week high marked Friday, around 103.60 at the latest, as improvements in the US Existing Home Sales for July and the Richmond Fed Manufacturing Index for August joins firmer Treasury bond yields. That said, the US Existing Home Sales came in as -2.2% MoM versus -3.3% prior while the Richmond Fed Manufacturing Index matched -7.0 market forecast compared to -9.0% previous readings.

Apart from the firmer US data, hawkish statements from Federal Reserve Bank of Richmond President Thomas Barkin also underpin the US Dollar’s rebound and weigh on the AUD/USD Price. On Tuesday, Fed’s Barkin emphasized achieving the 2.0% inflation target while challenging the US recession concerns by stating, per Reuters, “If the US were to have a recession, it would likely be a ‘less-severe’ one.” The policymaker also added, “Fed must be open to the possibility that the economy will begin to reaccelerate rather than slow, with potential implications for the US central bank's inflation fight.”

Elsewhere, Bloomberg came out with an analytical piece suggesting the market’s lack of confidence in China’s efforts to restore economic transition. Further, news from Russian media claimed Moscow’s destruction of a US-made military vessel near Snake Island, which in turn triggered the risk-off mood initially before restoring the sentiment amid concerns that the vessel was operating under a US flag.  

Amid these plays, Wall Street closed mixed but the S&P500 Futures printed mild gains by the press time. That said, the US 10-year Treasury bond yields rose to the highest level since late 2007, before retreating to 4.33% and hence flagging the market’s indecision.

Looking ahead, the preliminary readings of the US PMIs for August and Existing Home Sales for July will join the updates about the aforementioned risk catalysts to entertain the AUD/USD traders. That said, the US S&P Global Manufacturing PMI is likely to improve to 49.3 from 49.0 but the Services counterpart may edge lower to 52.2 versus 52.3 prior. As a result, the S&P Global Composite PMI is expected to reprint the 52.0 number and can test the Aussie pair buyers. Above all, Friday’s Jackson Hole Symposium is the key event that can offer clear directions.

Technical analysis

A daily closing beyond a one-month-old descending resistance line, now immediate support around 0.6400, directs AUD/USD towards May’s low of near 0.6460.