AUD/USD justifies China-linked optimism around 0.6850, focus on recession, US NFP

AUD/USD buyers flirt with a short-term key resistance around 0.6860 amid cautiously optimistic markets on early Friday. The Aussie pair’s latest gains could be linked to the hopes of improvement in the US-China trade relations, as well as easing fears of the recession. However, anxiety ahead of the US employment report for June tests the buyers of late.

US President Joe Biden is up for a meeting with his senior advisors on Friday to determine the tariff policy on China. Previously, diplomats from the US and China signaled a personal meeting after the latest virtual trade talks witnessed progress. With this, Beijing is optimistic that it can help ease the US its inflation problem by solving the supply-chain riddle, the same gained fewer accolades from the experts though.

Also relating to China-inspired optimism is the dragon nation’s readiness for $220 billion of stimulus with unprecedented bond sales, per Bloomberg. It’s worth mentioning that China’s zero covid-linked deaths also favor the risk-on mood and AUD/USD prices.

On a different page, the CEO of the Federal Reserve Bank of St. Louis, James Bullard stated, per Reuters, “We've got a good chance at a soft landing.” Additionally, Federal Reserve Governor Christopher Waller said inflation is way too high and does not seem to be easing and the Fed has to apply a more restrictive policy. However, both the policymakers tried to talk down the recession fears and seemed to have favored sentiment.

Furthermore, mixed data from the US also improved risk appetite the previous day and underpins the AUD/USD pair’s recent strength. That said, US Initial Jobless Claims rose by 4,000 to 235,000 in the week ending July 2, versus 230,000 expected. With this, the 4-week moving average number was 232,500, up 750 from the previous week's average. Further, the US goods and services deficit narrowed by $1.1 billion to $85.5 billion in May, marking the smallest monthly deficit in 2022.

While portraying the mood, Wall Street closed with gains and the US Treasury yields also marked the biggest daily run-up of the week. However, the S&P 500 Futures struggle to extend the risk-on mood forward as traders await the US jobs report for June. Forecasts suggest the headline US Nonfarm Payrolls (NFP) is expected to post the smallest monthly increase in jobs since April last year, by easing to 268K from 390K for June while the Unemployment Rate is likely to stay unchanged at 3.6% for the said month.

Also read: Nonfarm Payrolls Preview: Three dollar-positive scenarios, only one negative one

Technical analysis

AUD/USD needs a successful break of a three-week-old resistance line, around 0.6860 by the press time, to convince buyers to aim for the 0.7000 threshold. Failing to do so can drag the quote back to the recently flashed yearly low near 0.6760.