AUD/USD Snaps Two-Day Winning Streak Amid Fresh U.S. Dollar Demand, U.S. PCE And NFP Data Eyed

Key Takeaways:

• AUD/USD attracts fresh selling on Wednesday and moves back below 0.64000, snapping a two-day winning streak
• A fresh leg-up in U.S. Treasury Bond Yields underpins the greenback and helps cap the upside for the AUD/USD pair
• Fresh, disappointing Australian macro data undermines the Aussie Dollar (AUD) and helps limit further gains for the shared currency
• A slew of key U.S. data is set to be released today; however, the focus remains on U.S. PCE and NFP data

AUD/USD cross witnessed fresh selling on Wednesday during the Asian session, dropping below 0.64600. For now, the shared currency has snapped a two-day winning streak amid renewed U.S. dollar demand and looks set to maintain its offered tone heading into the European session.

A goodish pickup in U.S. Treasury Bond Yields amid firming market expectations that the Federal Reserve (Fed) will hike interest rates one more time by 25 basis points (bp) either during the September or November meeting helped revive U.S. dollar demand, which in turn was seen as a key factor that undermined the AUD/USD pair.  

This comes after Fed Chair Jerome Powell warned last Friday during an annual retreat in Jackson Hole, Wyoming, that there could still be further rate hikes. While Powell said the central bank could be flexible, he said it still has a long way to go to fight inflation. Further cementing the odds of a hawkish Fed was August’s FOMC Meeting Minutes report released this month. Federal Reserve officials expressed concern at their most recent meeting about the pace of inflation and said more rate hikes could be necessary unless conditions change.

To a greater extent, the hawkish Fed expectations overshadowed disappointing U.S. macro data, which showed the number of job openings declined in July while consumer sentiment dropped to one of its lowest levels in three months. That said, the prevalent risk-off mood continues to support the safe-haven greenback, which in turn weighs on the risk-sensitive Aussie and contributes to capping the upside for the AUD/USD cross.

Additionally, an Australian Bureau of Statistics report released early today showed the seasonally adjusted estimate for total dwellings approved in Australia declined by 8.1% month-over-month to 12,668 units in July 2023, worse than market forecasts of a 0.8% fall and after a revised 7.9% drop in the prior month. Moreover, total construction work done in Australia rose 0.4% quarter-on-quarter to A$59,010.6 million in the three months to June 2023, slowing from a 1.8% growth in the previous quarter and coming in below market expectations for a 0.8% gain.  

As we advance, investors look forward to the U.S. docket featuring the release of the ADP Nonfarm Employment Change (Aug) official data, the GDP (QoQ) (Q2) preliminary data, and the Pending Home Sales (MoM) (Jul) official data. However, the focus remains on the release of the U.S. personal consumption expenditures price index report, due on Thursday, and the August nonfarm payrolls data on Friday. 

Technical Outlook: Four-Hour AUD/USD Price Chart

From a technical standpoint, the price’s inability to find acceptance above the 0.64860 resistance level supported the case for southside moves. A further increase in selling pressure beyond the current price level would find support at the 0.64554 level. If sellers manage to breach this floor, downside pressure could accelerate, paving the way for a drop toward the 20 (blue) and 50 (red) day Exponential Moving Average (EMA) crossover at the 0.64426 level. Acceptance below this barrier would pave the way for a further drop toward the 0.64268 horizontal level. On further weakness, the AUD/USD price could decline toward the 0.64033 - 0.63984 demand zone. Sustained weakness below this zone, followed by a break below the ascending trendline (support level) extending from the mid-August 2023 swing low, would pave the way for further losses around the AUD/USD pair.

On the flip side, if buyers resurface and spark a bullish turnaround, initial resistance comes in at the 0.64860 level. On further strength, the focus shifts to the 0.65163 - 0.65213 supply zone, followed by the 200-day (yellow) EMA around the 0.65409 level.