- AUD/USD attracts fresh buying on Tuesday in reaction to the upbeat Chinese PMI print.
- Rising US bond yields act as a tailwind for the USD and cap additional gains for the pair.
- The fundamental backdrop favours bulls and supports prospects for a further move up.
The AUD/USD pair regains positive traction on the first trading day of 2024 and for now, seems to have stalled a two-day-old corrective slide from its highest level since mid-July, around the 0.6870 region touched last week. A private survey showed on Tuesday that manufacturing activity in China expanded at a quicker pace at the end of 2023 on the back of steady growth in new orders amid continued improvement in local and overseas demand. In fact, the Caixin Manufacturing PMI unexpectedly ticked higher to 50.8 in December from the 50.7 seen in the prior month. Apart from this, expectations that the Reserve Bank of Australia (RBA) is unlikely to rush to cut rates in 2024 offer some support to the China-proxy Aussie.
Meanwhile, the official data released over the weekend indicated a further deterioration in China’s manufacturing activity. This, along with a modest US Dollar (USD), keeps a lid on any further appreciating move for the AUD/USD pair. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, is seen prolonging its recovery move from a five-month low and gaining positive traction for the third straight day amid the ongoing recovery in the US Treasury bond yields. That said, growing acceptance that the Federal Reserve (Fed) will deliver a series of interest rate cuts in 2024, starting as early as March, should cap the upside for the US bond yields and hold back the USD bulls from placing aggressive bets.
Traders might also prefer to wait on the sidelines and look to the FOMC meeting minutes, due on Wednesday, for cues about the rate cut path. Investors this week will also confront important US macro data – ISM Manufacturing PMI and JOLTS Job Opening on Wednesday, followed by the ADP report on Thursday and the closely-watched monthly employment details (NFP) on Friday. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the AUD/USD pair. Nevertheless, the aforementioned fundamental backdrop seems tilted in favour of bullish traders and suggests that the path of least resistance for spot prices is to the upside.
Technical Outlook
From a technical perspective, momentum beyond the Asian session peak, around the 0.6835-0.6840 region, is likely to confront some resistance near the 0.6870 zone, or the multi-month top touched last week. This is followed by the double-top barrier near the 0.6900 mark, which should now act as a key pivotal point for short-term traders. A sustained strength beyond will be seen as a fresh trigger for bullish traders and allow the AUD/USD pair to reclaim the 0.7000 psychological mark, with some intermediate hurdle near the 0.6955 region.
On the flip side, weakness back below the 0.6800 mark is likely to find some support near the 0.6780-0.6770 region. Some follow-through selling has the potential to drag the AUD/USD pair further towards the 0.6725 area en route to the 0.6700 mark. A convincing break below the latter might negate the positive outlook and pave the way for deeper losses. Spot prices might then decline to the 0.6640 region before eventually dropping to the 0.6600 round figure and the next relevant support near the 0.6570-0.6565 zone.
