AUDUSD drops to 13-week low on mixed Aussie-China data, cautious mood ahead of FOMC

Markets portray the typical pre-Fed consolidation and hence the US Dollar pares previous gains, especially amid mixed data and a cautious mood ahead of the Federal Open Market Committee (FOMC) monetary policy meeting announcements. That said, the risk-positive headlines from China and hopes of lower rates from major central banks underpin cautious optimism even as the geopolitical news and anxiety before the key catalysts restrict optimism.

Given the indecision, the risk-barometer AUDUSD drops the most among the G10 currency pairs despite the US Dollar’s downbeat performance. Also exerting downside pressure on the Aussie pair could be unimpressive data at home and also at China, known as Australia’s key customer.

EURUSD recovers from a three-week low but the GBPUSD struggles after a two-day losing streak, especially amid dovish bias about the Bank of England (BoE).

USDJPY portrayed a volatile day by initially slumping to a 3.5-month low before posting mild gains. The Yen pair’s whipsaw fails to justify the Bank of Japan’s (BoJ) 0.15% rate hike.

Elsewhere, NZDUSD fades the previous day’s corrective bounce despite upbeat data at home while USDCAD remains dicey after reversing from an eight-month high. It should be noted that the Crude Oil’s recovery from an eight-week low helps the Canadian Dollar (CAD) to lick its wounds.

Crude Oil snaps a three-day losing streak while bouncing off the lowest level since early June as geopolitical woes join a higher-than-expected draw in the US oil inventories.

Gold price benefits from the market’s anxiety and the US Dollar’s retreat, as well as the softer yields, while rising to a one-week high after defying a fortnight-old bearish channel.

Talking about the cryptocurrencies, BTCUSD and ETHUSD pare previous losses despite fears of the US Government’s Fund Transfer. Also restricting Bitcoin and Ethereum moves are the mixed concerns about Donald Trump’s victory in the US Presidential Elections that triggered a rally in early July.

Following are the latest moves of the key assets:

• WTI Crude oil snaps a three-day losing streak while bouncing off the lowest level in eight weeks, up 1.20% intraday near $76.10 by the press time.
• Gold extends the previous day’s run-up to the highest level in a week, mildly bid near $2,420 at the latest.
• The USD Index remains depressed around 104.40, after reversing from a fortnight high the previous day.
• Wall Street closed mixed but the Asia-Pacific shares edged higher. Further, equities in Britain and Europe also print mild gains during the initial trading hour.
• BTCUSD and ETHUSD both print mild intraday gains around $66,400 and $3,320 at the latest.

US Dollar pares previous gains amid pre-Fed consolidation…

A three-month high in US JOLTS Job Openings & upbeat CB Consumer Confidence failed to inspire the US Dollar bulls ahead of FOMC. The Greenback’s loss could be linked to the cautious optimism in the markets and expectations of witnessing a dovish halt from the US Federal Reserve (Fed) during Wednesday’s announcements.

News suggesting a delay in new China tariffs and China’s Politburo meeting announcements favoring more stimulus also pushed back the market’s pessimism and exerted downside pressure on the US Dollar.

That said, recently firmer US data and geopolitical woes emanating from China and the Middle East, as well as from the US, challenge the US Dollar bears amid hopes of witnessing fewer rate cuts in 2024.

Amid these plays, the US Dollar Index (DXY) remains pressured after reversing from a two-week high while the EURUSD struggles to cheer the US Dollar’s weakness due to mostly downbeat growth and inflation numbers from the Eurozone and Germany.

It should be noted that the GBPUSD holds lower grounds as the latest UK inflation clues favor the BoE’s rate cut whereas the British politics challenge the Pound trader’s optimism. It should be observed that a slump in the UK’s short-dated gilt yields also suggests the BOE’s rate cuts and weighs on the Cable pair.

USDJPY fails to justify the Bank of Japan’s (BoJ) 0.15% rate hike as the news was already leaked and the Japanese central bank appears losing its hawkish bias. Also challenging the Yen pair traders is the BoJ’s decision to taper bond purchases and cautious tone of economic assessment.

AUDUSD drops the most among the G10 currency pairs while ignoring the US Dollar’s downbeat performance and news suggesting China’s stimulus. The reason could be linked to the unimpressive inflation data at home and mixed PMIs from China. It’s worth noting that the odds favoring the Reserve Bank of Australia’s (RBA) rate hike during next week’s monetary policy meeting increased of late.

NZDUSD retreats from a week’s high while reversing the previous day’s corrective bounce despite strong ANZ sentiment data from New Zealand. The reason could be linked to softer China data and the market’s consolidation ahead of the FOMC.

USDCAD remains pressured after reversing from the highest level since November 2023 the previous day. In doing so, the Loonie pair takes clues from a recovery in the prices of Canada’s main export item, namely Crude Oil, as well as the US Dollar’s pullback.

Talking about Crude Oil, news suggesting the killing of Hamas leader Ismail Haniyeh in Tehran joined a larger-than-expected draw in the weekly Crude Oil inventories, per the American Petroleum Institute (API) to propel the Oil prices.

While the market mostly remains dicey and the risk assets dwindle, traders take solace in the Gold prices. As a result, the precious metal rises to the highest level in a week while extending the previous day’s run-up amid the US Dollar’s weakness and mixed sentiment. That said, hopes of more stimulus from China and the geopolitical woes elsewhere also contributed to the XAUUSD’s run-up.

• Strong buy: USDCAD, USDJPY, US Dollar, Silver
• Strong sell: AUDUSD, NZDUSD, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Sell: DAX, FTSE 100, EURUSD, Crude Oil

A slew of data/events to infuse volatility…

After witnessing an active start of the key data, forex market players will witness magnified volatility moving forward. The reason could be linked to the existence of a slew of top-tier data from the Eurozone and the US. Among them, the first readings of the EU’s inflation, the US ADP Employment Change and the US Federal Reserve (Fed) announcements will gain major attention. Apart from that, the monthly prints of Canadian GDP for May and the weekly outcomes of the US EIA Crude Oil Stocks Change, as well as the risk news, will also entertain the momentum traders.

Given the mostly certain case of the European Central Bank’s (ECB) further rate cuts, any improvements in the EU inflation may not help the EURUSD pair buyers unless the Fed disappoints with a dovish halt of the interest rate. Alternatively, downbeat prints of the EU CPI and HICP figures, as well as the Fed’s ability to please the policy hawks, might not hesitate to drown the Euro pair.

The US ADP Employment Change, also known as the early signal for Friday’s Nonfarm Payrolls (NFP), is likely to reprint the 150K figures and has recently lost its credibility. As a result, only an extreme print can shake the US Dollar, especially when the market is waiting for the FOMC. That said, the Fed is most likely to keep the interest rate unchanged but clues of September rate cuts and Fed Chair Powell’s press conference will be closely observed to determine the future rate reductions from the US central bank, which if confirmed can drown the US Dollar.

Elsewhere, a recovery in the Crude Oil and Gold prices may join the likely pullback in the US Dollar to keep the USDCAD down and put a floor under the prices of the AUDUSD and NZDUSD. However, USDJPY may lack direction amid the market’s indecision about BoJ’s future course of action after the latest rate hike.

Additionally, a slew of earnings from Wall Street could also entertain the momentum traders after the latest volatility in benchmark indices near all-time highs.

May the trading luck be with you!