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AUD/USD Recovers Further From The Year's Low, Reclaiming 0.6400 And Beyond On USD Weakness
AUD/USD gains ground on Friday, snapping an eight-day losing trend to the yearly low. A modest USD depreciation is accompanied by intraday short-covering motivated by the expectation of additional stimulus from China. The Fed's hawkish outlook and the impending threat of a recession limit USD losses and cap the main currency.
The AUD/USD pair extends its overnight rebound from the 0.6365 area, or its lowest level since November 2022, and acquires some positive momentum during Friday's Asian session. In the past hour, spot prices have risen above the 0.6400 level and appear to have ended an eight-day losing trend, although a meaningful appreciation move remains elusive.
On Thursday, China's second-largest real estate company, Evergrande, and a related company, Tianji Holdings, filed for protection from creditors in a US bankruptcy court, heightening concerns about the country's property market. This adds to concerns about the deteriorating economic conditions in China and fuels speculations about additional stimulus measures, which in turn drives some flows towards the Australia Dollar (AUD), a currency that is viewed as a substitute for the Chinese Yuan. On the other hand, the US Dollar (USD) is expected to consolidate just below its greatest level since July 12 reached on Thursday, which is another factor supporting the AUD/USD pair.
The USD decline could be attributed solely to a modest decline in US Treasury bond yields from a multi-year high. In light of the growing consensus that the Federal Reserve (Fed) will maintain higher interest rates for an extended period of time, it is important to recall that the yield on the benchmark 10-year US government bond inched closer to its 2008 peak in October 2022. The expectations were reaffirmed by the FOMC meeting minutes from July 25-26, which disclosed that the fight against inflation remained a top priority for policymakers. This should operate as a tailwind for US bond yields and the USD, ultimately putting a ceiling on the AUD/USD exchange rate.
As a result of rising odds of another on-hold rate decision by the Reserve Bank of Australia (RBA) in September and Thursday's disappointing domestic employment report, traders may also refrain from placing aggressive bullish wagers on the Australian dollar. In fact, the Australian Bureau of Statistics (ABS) reported a net loss of 14,600 jobs and an unexpected increase in the unemployment rate to 3.7% in July. In the absence of pertinent US economic data, it is prudent to await strong follow-through buying before confirming that the AUD/USD pair has formed a near-term bottom and positioning for any further recovery.
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