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  • The bid tone around the AUD strengthens as China’s Caixin PMI beats estimates. 
  • AUD/USD is challenging the psychological hurdle of 0.74. 
  • Dovish Federal Reserve could continue to propel AUD/USD higher. 

AUD/USD is already on a strong upward trajectory, courtesy of the US dollar’s broad-based weakness. And now, with crucial China data bettering estimates, the bullish case is looking stronger. 

China’s Caixin Manufacturing PMI, which focuses mainly on the small and medium-sized export-oriented units, rose to 53.1 in August, surpassing the forecast of 52.6 and up from July’s 52.8 reading. A number above 50 represents an expansion in the activity. August’s figure, therefore, indicates that the pace of growth in the manufacturing sector picked up. 

The Caixin PMI comes a day after the National Bureau of Statistics reported a better-than-expected manufacturing and non-manufacturing PMI and could reinforce expectations for a faster recovery in the world’s second-largest economy. 

As such, the AUD, a China-sensitive and risk-on currency, stands to gain. 

Additional bullish pressure could continue to stem from Federal Reserve’s dovish stance. Having adopted a more relaxed approach to controlling inflation last week, the Federal Reserve now has a bigger room to keep rates low for a prolonged period. As such, currently, there is little appetite for US dollars. 

At press time, AUD/USD is trading near 0.74, representing a 0.33% increase on the day. The pair has added over ten pips since the release of the Caixin PMI. 

That said, a potential pullback in commodities like iron ore and gold could yield a technical correction in the AUD/USD pair, which has rallied by 1,400 pips over the past 5-1/2-months.   

Technical levels

 

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