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  • AUD/USD extends Friday’s pullback following China’s reaction to the trade-negative sentiment.
  • Doubts surrounding any breakthrough from the US-China trade meeting, RBA’s rate cut keep Aussie traders worried.
  • China’s PMI could entertain traders ahead of a week-long holiday period at the Dragon Nation.

Chinese diplomat’s not so negative response to the speculations concerning the US discussing limits to portfolio investment flows to the dragon nation helps the AUD/USD pair to stretch its latest gains to 0.6566 ahead of China’s key activity numbers, up for release during the early Monday morning in Asia.

Bloomberg recently exerted downside pressure on any hopes of a breakthrough from the US-China trade talks, up for October 10-11, while sharing the news that the White House officials are discussing ways to limit portfolio flows to China.

However, traders might have emphasized more on the United States’ (US) Treasury departments’ comments, shared in the Bloomberg news, which turned down the scope of any such action for the time being. Adding to the momentum could be the comments from China’s diplomat Wang Yi who refrained from general threat calls to the US and hoped for a positive outcome from the upcoming trade meeting.

Investors are also concerned about the Reserve Bank of Australia’s (RBA) anticipated rate cut trajectory. Although a 0.25% cut to Cash Rate is almost given for Tuesday’s interest rate decision, markets will look for clues to how long the dovish cycle is expected to last.

The immediate concern for the Aussie traders will be China’s September month Purchasing Managers’ Index (PMI) numbers from the National Bureau of Statistics  (NBS) and Caixin. While the official NBS Manufacturing PMI is expected to improve to 49.7 from 49.5, its private counterpart from Caixin might weaken to 50.2 from 50.4. Further, Non-Manufacturing PMI could rise to 54.2 from 53.8.

Although catalysts concerning the US-China trade deal keep holding the front seat for the Aussie moves, upbeat readings from key activity numbers of the largest Aussie customer could push the RBA board to be cautious while furthering the process of rate cuts.

Technical Analysis

The 0.6770/75 area comprising 23.6% Fibonacci retracement of July-August declines and 10-day simple moving average (SMA) acts as an adjacent upside barrier ahead of highlighting 50-day SMA level of 0.6800. On the downside, 0.6740-35 could restrict near-term declines, a break of which could recall 0.6700 on the chart.