AUD/USD sticks to intraday gains around 0.6425-30 area, upside potential seems limited

The AUD/USD pair regains positive traction on the first day of a new week and climbs to the 0.6430 area during the Asian session, snapping a two-day l

China on Sunday announced that the levy charged on stock trading will drop from 0.1% to 0.05% from August 28 – marking the first reduction since 2008. The new measures are aimed at boosting the struggling market and reviving investor confidence, which, in turn, benefits the China-proxy Australian Dollar , which draws additional support from the better-than-expected domestic data.

In fact, the Australian Bureau of Statistics reported that Retail Sales – a measure of the country’s consumer spending – rose 0.5% in July against consensus estimates for a 0.3% increase and the 0.8% decline registered in the previous month. This, along with a modest US Dollar downtick, provides a goodish lift to the AUD/USD pair, though any meaningful appreciating move seems elusive.

Concerns about the worsening economic conditions in China and looming recession risks should keep a lid on the optimism in the markets. Apart from this, the prospects for further policy tightening by the Federal Reserve should limit the USD corrective pullback from its highest level since early June touched on Friday and contribute to capping gains for the AUD/USD pair, at least for now.

It is worth recalling that the markets have been pricing in the possibility of one more 25 bps rate hike by the end of this year. The bets were reaffirmed by Chair Jerome Powell's comments on Friday, backing the need to raise interest rates further to cool still-too-high inflation. Powell added that policymakers will proceed carefully as they decide whether to tighten further or to hold rates constant.remains supportive of elevated US Treasury bond yields and favours the USD bulls, warranting some caution before placing aggressive bullish bets around the AUD/USD pair.

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