AUD/USD barely holds 0.6600 amid US credit downgrade, eyes on US ADP Employment Change

• AUD/USD portrays a corrective bounce at the lowest level in a month after falling the most since March.
• US credit rating cut drags US Dollar from three-week high but RBA-inflicted pessimism, downbeat Australia data weighs on Aussie price.
• Sour sentiment also exerts downside pressure on AUD/USD price due to its risk-barometer status.
• US ADP Employment Change for July will be crucial ahead of Friday’s RBA SoMP, US NFP.

AUD/USD stays defensive around 0.6615-20 while licking the wounds at the lowest level in a month amid early Wednesday in the Asia-Pacific zone. In doing so, the Aussie pair struggles to cheer the US Dollar’s retreat from a multi-day high while keeping the Reserve Bank of Australia (RBA) inflicted fears intact. That said, the US Dollar’s latest pullback could be linked to a surprise US credit rating cut, as well as the recently downbeat Federal Reserve (Fed) talks and the mixed US data.

It’s worth observing that Australia’s AiG Industry Index for June slumps to -14.7 from -11.9 whereas AiG Manufacturing PMI for the said month nosedives to -25.6 from -19.8 previous readings and exerts downside pressure on the AUD/USD price of late.

Fitch Ratings downgrades the US government's credit rating to AA+ from AAA while terming fears of the debt crisis as the key catalysts on late Tuesday. Following the announcements, the White House and US Treasury Secretary Janet Yellen rushed to criticize the move and defend the US Dollar but failed of late.

Before that, downbeat comments from Atlanta Federal Reserve Bank President Raphael Bostic also underpin the AUD/USD pair’s recovery. That said, Fed’s Bostic rules out the need for a September rate hike while warning of the risk of over-tightening.

It should be noted, however, that the RBA’s second consecutive inaction contrasts with the hopes of witnessing a Fed rate hike in September to keep the AUD/USD bears hopeful, especially amid downbeat catalysts from China.

On Tuesday, the Reserve Bank of Australia (RBA) defied market forecasts by keeping the benchmark rates intact at 4.1%, marking the second consecutive status quo after challenging the two hawkish surprises in the last monetary policy meeting in July. However, the Aussie central bank’s Monetary Policy Statement, presented by Governor Phillip Lowe, mentioned, “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon the data and the evolving assessment of risks.”

That said, China announced restrictions on drone exports in retaliation to the US tech and trade war tactics by citing the “national security” measures. China Caixin Manufacturing PMI for July fails to trace its upbeat NBS counterpart while declining to 49.2 for July from 50.5 prior, versus 50.3 market forecasts, marking the lowest level since January.

Elsewhere, US ISM Manufacturing PMI for July improves to 46.4 from 46.0 prior, versus 46.8 expected. Further details unveil that ISM Manufacturing Employment Index slumped to 44.4 from 48.0 expected and 48.1 prior whereas the ISM Manufacturing Price Paid for the said month rose to 42.6 from 41.8, compared to 42.8 market forecasts. Elsewhere, the US JOLT Job Openings for June also eased to 9.582M compared to 9.62M expected and 9.616M previous readings (revised).

Against this backdrop, Wall Street closed mixed and the US Treasury bond yields rose but the S&P500 Futures dropped 0.34% intraday by the press time.

Looking forward, the market’s reaction to the US rating cut and cautious mood ahead of the US ADP Employment Change may direct the AUD/USD moves amid a light calendar. That said, the ADP data can prod the US Dollar bulls if matching or decline below the downbeat forecasts of 189K for July versus 497K prior.

Technical analysis

Unless posting a successful recovery beyond the 200-DMA hurdle of around 0.6735, the AUD/USD stays vulnerable to test an ascending support line from October 13, 2022, around 0.6590 by the press time.