AUD/USD rebounds from intraday low of 0.6590 on upbeat China Caixin Services PMI, US data, RBA eyed

AUD/USD picks up bids to recover from intraday low on upbeat China data.
China Caixin Services PMI for May matches upbeat market forecasts, Aussie inflation clues also came in firmer.
Sluggish sentiment, pre-RBA anxiety and hawkish Fed bets keep Aussie bears hopeful.
US Factory Orders, ISM Services PMI may direct intraday moves, RBA is the key.

AUD/USD pares intraday losses around 0.6600 after China’s private activity gauge flashes upbeat signals during early Monday. Adding strength to the Aussie pair’s corrective bounce could be the initial Asian session release suggesting higher inflation in Australia.

That said, China’s Caixin Services PMI matches 57.1 market forecasts for May versus 56.4 previous readings. Earlier in the day, Australia’s TD Securities Inflation rose 0.9% MoM in May versus 0.2%. It should be noted, however, that the downbeat prints of the TD Securities Inflation on a YoY basis join a reduction in the nation’s Company Gross Operating Profits for the first quarter (Q1) to prod the AUD/USD bulls.

On the other hand, hawkish Fed bets join the geopolitical fears to weigh on the AUD/USD price, especially amid fears of the Reserve Bank of Australia’s (RBA) policy pivot.

Hopes of the Fed’s 0.25% rate hike in June rallied while the market’s bets of a Fed rate cut in 2023 dropped after Friday’s Nonfarm Payrolls (NFP) surprised markets. That said, the US Nonfarm Payrolls (NFP) rose by 339K in May versus 190K expected and 294K prior (revised). It’s worth noting, however, that the Unemployment Rate also rose to 3.7% from 3.4% prior, versus 3.5% market forecasts. It should be noted, that the Average Hourly Earnings eased whereas the Labor Force Participation Rate remain the same as previous.

Elsewhere, the Shangri-la Dialogue in Singapore renewed geopolitical fears surrounding the US and China amid no meeting of the policymakers of both nations, as well as an incident suggesting escalating war fears among the Sino-American navies in the Taiwan Strait. Furthermore, news from Russian Defense Ministry suggesting large-scale military operations by Ukraine also weigh on the sentiment and put a floor under the US Dollar.

Against this backdrop, the US 10-year and two-year Treasury bond yields recover after snapping a three-week uptrend by the end of the last Friday. That said, the S&P500 Futures also portray the risk-off mood by mild losses as it retreats from the highest levels since August 2022. The same underpins the US Dollar Index (DXY) strength ahead of the US Factory Orders and ISM Services PMI for May.

Above all, recently dovish concerns about the RBA, especially after previously downbeat Aussie inflation readings and the Reserve Bank of New Zealand’s (RBNZ) actions, keeps the AUD/USD bears hopeful.