AUD/USD extends bounce off two-year low towards 0.6800 on upbeat Aussie trade data

• AUD/USD picks up bids to consolidate recent losses on upbeat Australia trade numbers.
• Aussie Trade Balance, Exports and Imports improved during May.
•  Market sentiment dwindles as recession fears jostle with softer USD, pullback in yields.
• US ADP Employment Change, NFP could entertain traders, economic slowdown, central banks are the key catalysts.

AUD/USD picks up bids to refresh intraday high near 0.6790 on strong Australia trade numbers during Thursday’s Asian session. Also keeping buyers hopeful are headlines from China and softer US data. However, fears of recession and anxiety ahead of the key US data/events keep buyers in check.

Australia’s Trade Balance rose to 15,965M in May versus 10,725M expected and 10,495M prior. Further details reveal that Exports rose 9.5% from 5.0% prior and Imports grew 5.8% compared to the previous contraction of 0.8%.

The quote’s recovery could also be linked to news from China suggesting more efforts to boost the economic transition from the pandemic. Recently, China’s Commerce Ministry hints at taking measures to increase vehicle consumption.

It should be noted that the previous day’s softer US data could also be held responsible for challenging the AUD/USD sellers. That said, US ISM Services PMI for June dropped to 55.3 versus 55.9 in May. The actual figure, however, came in better than the market expectation of 54.5. It’s worth noting that the US JOLTS Job Opening for May declined to 11.25 million versus 11.00 million expected and 11.68 million prior.

Even so, fears of virus-led lockdowns, due to the recent mass testing, join the global recession woes to weigh on the AUD/USD prices. The 2-year US Treasury bond coupon retreats to 2.96% but shows the inverse gap with the 10-year bond yields, which in turn portrays the global recession fears. International Monetary Fund (IMF) Managing Director Kristalina Georgieva also said, per Reuters, “Global economic outlook has 'darkened significantly' since last economic update.” the IMF chief also added, “Cannot rule out the possible global recession in 2023.”

Also, the Federal Open Market Committee (FOMC) Minutes favored the Fed hawks and keep the AUD/USD bulls at bay. From the latest monetary policy meeting minutes, the Fed policymakers appear determined to announce another 75 basis points (bps) of a rate hike. That said, the latest Fed Minutes highlighted the need for the “restrictive stance of policy” while also saying, “even more restrictive stance could be appropriate if elevated inflation pressures were to persist”.

Having witnessed the initial reaction to the domestic data, AUD/USD traders may pay attention to the risk catalysts for fresh impulse. Though, major attention will be given to the US ADP Employment Change for June, expected 200K versus 128K prior, as it becomes the early signal for Friday’s Nonfarm Payrolls (NFP).

Also read: ADP Net Employment Change June Preview: Can employment stave off a recession?

Technical analysis

A downward slopping trend line from January, around 0.6750 by the press time, restricts immediate AUD/USD downside ahead of the late 2019 low near 0.6670. However, recovery remains elusive unless crossing the previous support line from May, close to 0.6865 at the latest.