AUD/USD tests 0.7100 ahead of US PMI data

• AUD/USD fails to capitalize on upbeat China PMI data.
• US Dollar Index continues to erase last week’s losses. 
• July PMI data will be featured in the US economic docket. 

After surging to its highest level since February of 2019 at 0.7229 last Friday, the AUD/USD pair staged a deep correction and finished the week at 0.7143. Ahead of key macroeconomic events from Australia, the pair extends its slide on Monday and was last seen losing 0.5% on the day at 0.7106.

 Earlier in the day, the data from China showed that the Caixin Manufacturing PMI rose to 52.8 in July and beat the market expectation of 51.3 but failed to help the AUD.

On the other hand, the ongoing recovery in the US Treasury bond yields helped the USD find demand at the start of the week and kept the bearish pressure on AUD/USD intact. With the  10-year US T-bond yield gaining 4.5% on the day, the US Dollar Index is up 0.38% at 93.81.

Focus shifts to RBA meeting

In the second half of the day, both the IHS Markit and the ISM will publish the July Manufacturing PMI data for the US. More importantly, the Reserve Bank of Australia (RBA) will announce its interest rate decision and release its policy statement during the Asian trading hours on Tuesday. 

Previewing this event, “we do not see further reductions in the policy rate, with negative rates ruled out by RBA Governor Phillip Lowe (for now),” said UOB economist Lee Sue Ann. “The focus will remain firmly on end-users rates via the yield curve target, as well as ensuring sufficient liquidity in bond markets and the free flow of credit to households and business”.

Technical levels to watch for