Bulls turn cautious amid modest USD strength ahead of US data

• AUD/USD continues to draw support from optimism over China’s stimulus measures.
• Upbeat Australian retail sales data provides further impetus to the currency pair.
• Some USD buying caps major gains ahead of US macro data.

The AUD/USD pair attracted buyers for the fourth consecutive day on Tuesday and returned closer to the highest level since February 2023 touched the previous day. The Australian dollar (AUD) gets a minor boost following the release of upbeat domestic retail sales figures, which rose 0.7% in August, compared to a modest 0.1% increase in the previous month. This comes in addition to the dovish stance of the Reserve Bank of Australia (RBA), reiterating that interest rate cuts are unlikely in the near term. Apart from this, the recent stimulus bonanza from China is proving to be another factor benefiting the Aussie, although some US dollar (USD) buying is keeping the pair in check.

Federal Reserve (Fed) Chairman Jerome Powell took a more dovish tone on Monday and said he sees just two additional 25-basis-point interest rate cuts this year as a benchmark for whether the economy will perform as expected. That, in turn, forced investors to limit their bets for more aggressive policy easing by the Fed. Apart from this, the risk of a further escalation of geopolitical tensions in the Middle East is helping the USD gain positive traction for the second day in a row and could limit gains for the AUD/USD pair. In fact, Israeli forces began limited, localized and targeted ground raids in Lebanon two days after killing the head of the Hezbollah armed group Hassan Nasrallah in an airstrike.

Meanwhile, markets are still weighing the possibility of a big Fed rate cut move by the end of this year. In addition, the global flight to safety is triggering a further decline in US Treasury yields. This could prevent the USD bulls from placing aggressive bets and supports the prospects for another near-term appreciation move for the AUD/USD pair. Investors, however, may prefer to wait for this week’s key US macro releases scheduled for the start of a new month, including Friday’s Nonfarm Payrolls (NFP) report. Meanwhile, Tuesday’s economic file – which includes ISM Manufacturing PMI and JOLTS Job Openings – could generate near-term opportunities.

Technical perspectives

Technically, the 19-month high around the 0.6935-0.6940 region now appears to have emerged as an immediate hurdle above which the AUD/USD pair could look to recover the psychological 0.7000 mark. Some further buying should pave the way for another near-term appreciation move towards the 0.7055 intermediate hurdle en route to the 0.7100 round figure and the 2023 swing high around the 0.7150-0.7160 region.

On the other hand, any weakness below the immediate 0.6900-0.6890 support could still be seen as a buying opportunity near the 0.6835 region. This, in turn, should help limit the downside for the AUD/USD pair near the 0.6800 mark. The latter should act as a key pivotal point which, if decisively broken, could trigger aggressive technical selling and drag spot prices towards the 0.6760 intermediate support en route to the 0.6720 area and the round figure of 0.6700.

AUD/USD Daily Chart