Ella 
AUD/USD attracted fresh bulls in Asia on Thursday, seemingly snapping a two-day losing streak. Spot prices are now trading around the 0.6540 area, up more than 0.20% on the day, but still close to the lowest level since early June hit on Tuesday.
China’s hopes of expanding stimulus have been a key factor boosting commodity currencies such as the Australian dollar. The greenback, on the other hand, struggled to gain any meaningful traction as traders appeared reluctant to build aggressive positions ahead of key U.S. consumer inflation data due tonight. This in turn boosted AUD/USD and still supported its modest intraday gains.
Still, concerns over deteriorating economic conditions in China could keep a lid on gains in China’s proxy currency, the Australian dollar, amid softer macro data. It is worth recalling that Chinese inflation data released on Wednesday showed that consumer prices fell in July for the first time since February 2021, while the producer price index (PPI) fell for the 10th consecutive month. This was seen as another sign of weakening domestic demand.
Elsewhere, weak Chinese trade data on Tuesday also raised questions about the pace of the world’s second-largest economy’s post-epidemic recovery. In addition, expectations that the Federal Reserve (Fed) will stick to its hawkish stance and keep interest rates higher for longer should be a tailwind for the greenback, which could keep AUD/USD in check. Therefore, caution should be exercised before betting on further Aussie gains.
So the focus remains on the US CPI report, which may provide new clues to the Fed’s future rate hike path. The policy outlook will determine the direction of the US dollar and determine the next direction of AUD/USD. Meanwhile, the recent break below the 0.6600 mark has confirmed a break below a bearish double top pattern, suggesting that the path of least resistance for the Aussie is to the downside.
