AUD/USD marches towards 0.6770 hurdle as RBA’s Kearns sounds optimistic, Fed, PMIs eyed

• AUD/USD pares recent losses at the lowest levels in two years.
• RBA’s Kearns stated Aussie home buyers could benefit from higher rates.
• Headlines from China, pre-Fed consolidation underpin the corrective bounce from multi-day low.
• Off in Japan, the UK may restrict market moves amid a light calendar.

AUD/USD picks up bids to refresh intraday high around 0.6770, consolidating the losses after dropping to the 28-month low the previous day. In doing so, the Aussie pair not only braces for Wednesday’s Fed meeting but also cheers recently upbeat headlines from China, as well as upbeat headlines from Reserve Bank of Australia (RBA) policymaker.

“Australians looking to buy a new home could actually benefit from rising interest rates as they lower the price of housing enough to ultimately result in lower mortgage payments than they would otherwise face,” stated RBA Assistant Governor and Head of Domestic Markets Jonathan Kearns. The policymaker also mentioned, “Overall we know that higher interest rates will tend to depress residential and commercial property prices but there is considerable uncertainty about the magnitude and even the timing.”

Elsewhere, news that Dalian, a city in China’s Liaoning province, will lift the citywide lockdown on Monday, also seemed to have favored the AUD/USD rebound. It should be noted that an increase in China’s US Treasury buying should also be cited as the distant reason for the pair’s recovery.

“China increased its holdings of Treasuries in July for the first time in eight months, while Japan reduced its U.S. government debt load, data from the US Treasury department showed on Friday,” reported Reuters.

Above all, the market’s preparations for Wednesday’s Federal Open Market Committee (FOMC) meeting seem to be the top reason for the Aussie pair’s corrective pullback.

Even so, the hawkish bets on the Fed and economic fears emanating from China, as well as Europe, keep the AUD/USD bears hopeful. On Friday, the University of Michigan's preliminary readings of Consumer Sentiment for September came in at 59.5, up from 58.6 in the prior month while easing below 60.0 market forecasts. With the firmer US data, the odds of the Fed’s 75 basis points rate hike (bps) rose to nearly 80%, around 82% by the press time, while the market’s expectations of a full one percentage increase in the Fed rate rose to 18%.

Looking forward, AUD/USD prices may extend the latest recovery moves while waiting for the Fed’s verdict. Also important will be the Fed’s dot-plot, economic projections and Chairman Jerome Powell’s speech.

Technical analysis

AUD/USD defends Friday’s bounce off a two-month-old support line, around 0.6700 by the press time, even if the recovery remains elusive below the 50-DMA hurdle surrounding 0.6890.