AUD/USD drops to fresh daily low, around 0.6560 area amid resurgent USD demand

• AUD/USD meets with some intraday supply on Monday and is pressured by reviving USD demand.
• The US jobs data reaffirms expectations for one more rate hike by the Fed and underpins the USD.
• China’s economic woes and a softer risk tone also contribute to driving flow away from the Aussie.

The AUD/USD pair comes under some selling pressure following an intraday uptick to the 0.6600 neighbourhood and drops to a fresh daily low during the early part of the European session on Monday. Spot prices currently trade around the 0.6560 area and seem poised to resume the recent downward trajectory witnessed over the past three weeks or so.

The US Dollar kicks off the new week on a positive note and stalls a two-day-old corrective slide from its highest level since July 7 touched last Thursday, which, in turn, acts as a headwind for the AUD/USD pair. The closely-watched US NFP report showed that the economy maintained a moderate pace of job addition in July, though solid wage growth and an unexpected dip in the unemployment rate pointed to continued tightness in labour market conditions. This could allow the Federal Reserve (Fed) to stick to its hawkish stance and keep the door for one more 25 bps lift-off in September or November. The expectations trigger a modest recovery in the US Treasury bond yields and help revive demand for the Greenback.

Apart from this, a generally weaker tone around the global equity markets is seen as another factor driving flows away from the risk-sensitive Australian Dollar (AUD). Investors remain concerned that the post-COVID recovery in China – the world’s second-largest economy – is losing steam, which, to a larger extent, overshadows the latest optimism over additional stimulus. Even the Reserve Bank of Australia’s (RBA) hawkish quarterly Monetary Policy Statement (MPS) released on Friday, indicating that rates may still need to go higher, does little to lend any support to the AUD/USD pair. This, in turn, suggests that the path of least resistance for spot prices is to the downside and validates the near-term negative outlook.

Moving ahead, there isn’t any relevant market-moving economic data due for release from the US on Monday. Hence, traders will look to speeches by influential FOMC members for cues about the future rate-hike path. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and produce short-term opportunities around the AUD/USD pair. The focus, however, will remain glued to the latest consumer inflation figures from China and the US, due on Wednesday and Thursday, which will play a key role in providing a fresh directional impetus to the major.

Technical levels to watch