AUD/USD bulls approach 0.7000 on firmer Aussie Trade Balance, focus on Taiwan, NFP

• AUD/USD picks up bids to refresh intraday high, extend the previous day’s bounce off weekly top.
• Australia’s Trade Balance improved in June even as Exports, Imports eased.
• Mixed sentiment, softer US dollar add strength to the recovery moves.
• Second-tier US data, risk catalysts will be important for fresh impulse.

AUD/USD remains on the front foot for the second consecutive day, refreshing intraday high near 0.6965. In doing so, the Aussie pair justifies firmer Trade Balance data from the Australian Bureau of Statistics while cheering a softer US dollar amid a sluggish Asian session on Thursday.

That said, Australia’s Trade Balance rose to 17,670M in June, well beyond the 14,000M forecast and 15,965M prior. However, Imports and Exports both eased to 0.7% and 5.1% during the stated month versus respective priors of 5.8% and 9.5%.

It should be noted that Bloomberg’s news suggesting a lack of support for the US-Taiwan ties also seems to help the AUD/USD prices. The reason could be linked to the Democratic Party members’ ability to stop the US policymakers from mingling more with Taiwan which China doesn’t like, the same could help the market sentiment and the Aussie pair. “The Biden administration is lobbying Democratic senators to put the brakes on a bill that would alter US policy toward Taiwan, including by designating it as a major non-NATO ally, according to people familiar with the matter,” stated the news.

Elsewhere, mixed US data and Fedspeak also appeared to have weighed on the US dollar. That said, the US Dollar Index (DXY) remains indecisive around 106.35 after refreshing the weekly top with 106.82 earlier on Wednesday.

On Wednesday, the US ISM Services PMI for July rose to 56.7 from 55.3 prior and the market expectation of 53.5 whereas the final reading of the US S&P Global Services PMI for July dropped to 47.3, marking the first contraction in two years, from 52.7 in June and the flash estimate of 47. Elsewhere, China’s Caixin Services PMI for July also surprised markets with upbeat data.

Talking about the Fedspeak, St. Louis Federal Reserve Bank President James Bullard said, “(There is) still some ways to go to get to a restrictive monetary policy." The policymaker adds that he still wants to get to 3.75 to 4% this year while showing a preference for the type of frontloading. Other than Fed’s Bullard, Fed Minneapolis President Neel Kashkari and Richmond Fed President Thomas Barkin also joined the league of the Fed hawks to exert downside pressure. However, San Francisco Fed President Mary Daly appeared to have flashed mixed signals and tamed the DXY bulls afterward. The policymaker said, "Markets are ahead of themselves in expecting rate cuts next year."

Against this backdrop, market sentiment remains sluggish after portraying the optimism the previous day. While signaling the mood, the S&P 500 Futures remain directionless near 4,150 and the US 10-year Treasury yields remain pressured at around 2.71%, down three basis points (bps) by the press time.

Looking forward, Germany’s Factory Orders for June will precede the US Good and Services Trade Balance for June, expected $-80.1B versus $-85.5B prior, as well as the weekly Initial Jobless Claims, expected 259K versus 256K prior, to decorate the calendar. However, major attention will be given to the comments from the ECB and the Fed policymakers, as well as the Sino-American tension over Taiwan for clear directions ahead of Friday’s US NFP.

Technical analysis

A clear upside break of the support-turned-resistance line from July 14, around 0.7000 by the press time, becomes necessary for the AUD/USD buyers’ conviction. Failing to get this level can recall sellers targeting the 21-DMA support surrounding 0.6890.