AUD/USD justifies cautious optimism above 0.6800 as RBA rate hike, US ISM PMI loom

• AUD/USD picks up bids to extend the week-start rebound from seven-week low.
• Market sentiment improves amid hopes of more stimulus.
• Easing fears of recession, hawkish Fed bets underpin bullish bias as full markets return.
• RBA is expected to announce a fourth rate hike of 0.50% but the rate statement is crucial for bulls to watch.

AUD/USD flourishes on the bull’s radar as it refreshes the intraday low around 0.6820, close to 0.6815 by the press time, amid the market’s mildly positive outlook during Tuesday’s Asian session. The Aussie pair’s latest run-up could also be linked to the hawkish hopes from the Reserve Bank of Australia’s (RBA) anticipated fourth rate hike.

Be it the UK’s energy bill freeze or the People’s Bank of China’s (PBOC) cut in the Reserve Requirement Ratio (RRR), not to forget stimulus from Germany/Eurozone, policymakers are all in to battle with the recession woes, which in turn favored the sentiment. Also likely to have favored the AUD/USD buyers are the market’s reaction to the recent retreat in the hawkish Fed bets, especially after Friday’s mixed US jobs report. Above all, preparations for the RBA’s likely 0.50% rate hike and the full markets seemed to have played the role of late.

While portraying the mood, the US 10-year Treasury yields rose three basis points to 3.22% while the S&P 500 Futures rose 0.30% to 3,938 at the latest.

Alternatively, the impending recession woes in the Eurozone, the firmer odds of the US Federal Reserve’s (Fed) faster rate hikes despite the recently mixed data and the Sino-American tussles weighing on the prices. It should also be noted that the RBA’s rate hike appears mostly priced-in; hence, the AUD/USD traders seem to brace for a bearish move.

Russia’s halting of energy supplies to European worsened the situation for the old continent after it joined the other Group of Seven (G7) leaders to announce a price cap on Moscow’s oil. Also adding to the European energy crisis were dimming hopes of the US-Iran oil deal and the output cut from the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+.

Further, the US-China tussles over the trade deal and Taiwan escalated on Monday as the Biden Administration announced its intention to continue with the Trump-era tariffs for now. These tariffs were examined for removal and signaled the likely improvement in the relations previously. Further, the US readiness to sell arms to Taiwan and Taipei’s no-visa entry for some of its friendly country residents, including the US, teased Beijing to utter harsh words about the US-Taiwan ties and increased the tension.

Looking forward, the RBA’s 0.50% rate hike might not be able to convince the AUD/USD bulls unless the rate statement sounds hawkish. That said, a smaller-than-expected rate move or dovish comments from the Aussie central bank could renew the pair’s selling. Following that, the ISM Services PMI for August, expected 55.5 versus 56.7 prior, will be eyed closely for fresh impulse.

Also read: Reserve Bank of Australia Preview: Is the central bank ready to slow the tightening pace?

Technical analysis

AUD/USD rebound takes clues from the recently firmer RSI (14) to direct buyers toward the 0.6900 resistance confluence including the 50-DMA and the 23.6% Fibonacci retracement of the April-July downside. Meanwhile, a two-month-old horizontal support area restricts short-term declines of the Aussie pair to around 0.6765-60.