Australian Dollar consolidates near 0.7050, highest since June 17 amid reviving USD demand

AUD/USD enters a bullish consolidation phase on Wednesday near its highest level since June 17.
Mixed signals over the US-Iran peace deal revive demand for the safe-haven USD and cap the pair.
China’s dismal Services PMI fails to impress bulls or provide any meaningful impetus to the Aussie.

Haresh Menghani FXStreet

The AUD/USD pair struggles to break through the 100-day Simple Moving Average (SMA) pivotal barrier near mid-0.7000s and consolidates near its highest level since June 17, touched during the Asian session on Wednesday. Spot prices move little following the release of China's Services PMI, though the supportive fundamental backdrop backs the case for further near-term appreciation.

Iran rejects US Treasury Secretary Scott Bessent's and President Donald Trump's claim that the Strait of Hormuz will open under the new deal. This keeps geopolitical risk premium in play, which helps revive demand for the safe-haven US Dollar (USD) and acts as a headwind for the AUD/USD pair. Investors, however, remain hopeful about a diplomatic resolution to end a five-month-old US-Iran war. This, along with receding US Federal Reserve (Fed) interest rate-hike bets, might hold back USD bulls from placing aggressive bets and support the currency pair.

The latest optimism over a potential US-Iran agreement dragged crude oil prices to a nearly four-week low, which eases inflation fears. This, in turn, prompted traders to scale back their expectations for a further policy tightening by the US central bank, which should keep a lid on any meaningful USD appreciation. The upside for the AUD/USD pair, however, remains capped on the back of dismal China’s RatingDog Services PMI, which declined to 50.4 in July from 54.1 in the previous month and pointed to a moderation in service sector activity.

Moving ahead, traders now look forward to the US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI. This, along with speeches from influential FOMC members and further developments surrounding the Middle East crisis, will drive the USD demand and provide some impetus to the AUD/USD pair later during the North American session. The focus, however, will remain on the closely-watched US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday.

Economic Indicator

RatingDog Services PMI

The RatingDog Services Purchasing Managers Index (PMI), released on a monthly basis by Caixin Insight Group and S&P Global, is a leading indicator gauging business activity in China’s services sector. The data is derived from surveys of senior executives at both private-sector and state-owned companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the Renminbi (CNY). Meanwhile, a reading below 50 signals that activity among service providers is generally declining, which is seen as bearish for CNY.

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