AUD/USD ignores firmer US Dollar to recover from two-week low above 0.6700 amid risk-on mood

• AUD/USD grinds higher after bouncing off the lowest levels in nearly two weeks.
• US, Aussie PMIs came in mixed but the former were comparatively stronger and helped US Dollar to remain upbeat.
• Hopes of witnessing sooner end to tightening cycle at major central banks favored sentiment.
• China’s signals for more stimulus also favor Aussie bulls amid light calendar at home.

AUD/USD holds onto the week-start rebound from the lowest levels since July 12 to around 0.6740 amid the early hours of Tuesday’s Asian session. In doing so, the Aussie pair justifies its risk-barometer status, as well as cheers headlines suggesting more stimulus from China, while ignoring the firmer US Dollar and mixed data at home.

On Monday, Australia’s preliminary S&P Global Manufacturing PMI for July improved to 49.6 from 48.2 prior but the Services PMI drops below the 50.0 level to 48.0 versus 50.3 prior, suggesting a contraction in the activities. With this, the S&P Global Composite PMI for July eases to 48.3 from 50.1.

On the other hand, the first readings of the US S&P Global Manufacturing PMI for July improved to 49.0 from 46.3 prior and 46.4 market forecasts while the Services PMI eased to 52.4 versus 54.0 expected and 54.4 previous readings. With this, the Composite PMI edged lower to 52.0 from 53.2 prior and 53.1 market forecasts. That said, Chicago Fed National Activity Index for June slid to -0.32 from -0.28 prior (revised) and 0.03 market forecasts.

Despite the mostly unimpressive data, the bird’s eye view of the global PMI suggests a sooner end of the restrictive monetary policies at the major central bank, including the Federal Reserve (Fed), which in turn allowed the market players to remain optimistic on Monday and fuelled the AUD/USD pair.

Further, the Chinese media conveyed details of the Communist Party's Politburo meeting on Monday that cited new difficulties and challenges for the economy while also showing the policymakers’ readiness for prudent monetary and fiscal policies. Before that, China state planner National Development and Reform Commission (NDRC) issued a notice to promote the high-quality development of private investment. That said, NDRC also pledged encouragement of participation in some projects of transport, water and clean energy, as well as in new infrastructure and modern agriculture.

Apart from China stimulus headlines, hopes of witnessing an upbeat budget surplus also favored the AUD/USD bulls. Australia Treasurer Jim Chalmers said the previous day that he expects that the country’s budget surplus will be set at around AUD20 billion, defending June’s forecast versus May’s AUD4.2 billion (USD2.81 billion) projections.

Amid these plays, Wall Street closed with gains and the US Treasury bond yields joined the US Dollar Index (DXY) to remain firmer.

Moving on, a light calendar at home may allow the AUD/USD to defend the latest gains but challenges to sentiment and cautious mood ahead of Wednesday’s Australian inflation, as well as the Federal Reserve’s monetary policy meeting, may test the pair buyers. That said, US CB Consumer Confidence for July will entertain the traders in the US session.

Technical analysis

Although the 200-DMA restricts the immediate downside of the AUD/USD pair to around 0.6720, a daily closing beyond a one-week-old descending trend line resistance, around 0.6750 at the latest, becomes necessary for the bulls to retake control.