AUD/USD nurses heaviest losses in 12 weeks below 0.7300, eyes China trade data

• AUD/USD stays depressed at the week’s start, keeps late Friday's U-turn from 0.7299.
• US employment data, sluggish moves by equities and Sino-American tussle disappoint Aussie buyers off-late.
• China Trade Balance for August can entertain Asian traders, US markets are off for Labor Day.

AUD/USD seesaws between 0.7280 and 0.7290 as markets in Asia kick-start the week’s trading. The aussie pair dropped the most since mid-June by the end of the last week as the US dollar bounced off a 28-month low. Also weighing on the quote could be the mixed performance by global shares and escalation in the US-China tussle. It should also be noted that mostly positive US data, versus tepid Australian numbers, had an additional say in the pair’s performance during the last week.

US jobs report renews optimism but details warrant caution…

With the whooping decline in the US Unemployment Rate for August, from 10.2% to 8.4% in August, global markets praise President Donald Trump-led Republican government to shrug off the coronavirus (COVID-19) wave 2.0. The upbeat trading sentiment also took clues from the mostly positive Nonfarm Payrolls, 1,371K versus 1,400K forecast, whereas Labor Force Participation Rate also rose from 61.4% expected and prior to 61.7% in the previous month.

Given the positive performance of the generally followed economic barometer, the ruling Republican Party is now having an upper hand in the stimulus talks that are stuck. This might fasten aid-package negotiations that presently shows “serious differences” between the Republicans and Democrats, per House Speaker Nancy Pelosi.

Concerning this, the Australia and New Zealand Banking Group said, “The broad-based improvement in the labor data will play into the Republicans’ hands for a smaller stimulus package, as well as possibly raising voter support for Trump. House Leader, Nancy Pelosi, has said previously that the extension of unemployment benefits could be tied to the unemployment rate, so it is feasible that these data will help hasten a deal in Congress, as the USD3.4trn the Democrats seek is now arguably looking overdone.”

On the contrary, the trade and political tension between the US and China is escalating and can keep the pair traders depressed. After Beijing’s threat to cut the American debt purchase, the Trump administration levied trade-punitive measures on SMIC. The same got harshly criticized by China’s Global Times while saying, “The US’ reported move to blacklist Chinese chipmaker SMIC will deal some blows to the company and the broader semiconductor sector, but it won’t be "the end of the world" as China is boosting the domestic sector.”

Elsewhere, the COVID-19 conditions are getting positive with numbers from the US and Australia normalizing and global pharmaceutical companies are nearing the final trials.

Amid all these catalysts, Wall Street marked negative closing of the week but the US 10-year Treasury yields surged 9.9 basis points to 0.72% by the end of Friday’s trading. Traders are now waiting for Asian risk-barometers for fresh impulse.

Other than the risk catalysts, Aussie AiG Performance of Service Index and ANZ Job Advertisements can also offer immediate trading direction ahead of China’s August month trade numbers. It should, however, be noted that the absence of the US players, due to the Labor Day holiday, may curb the market moves. Forecasts suggest headline China Trade Balance to mark downbeat numbers in the USD and CNY both, which in turn can keep the bears happy in absence of any surprise.

Technical analysis

A 10-week-old ascending trend line around 0.7210 offers key support to the pair while 0.7300 and 0.7340 can restrict immediate upside moves. Bears are gradually entering the fields but need confirmation.