AUD / JPY defends 80.00 on slightly long equity futures ahead of Chinese PMI

  • AUD / JPY heals wounds around weekly low, pauses after two-day drop.
  • Market sentiment is improving as vaccine optimism battles US Senate updates.
  • Fed cone sickness, pessimism about China, Evergrande defies the bulls.
  • Chinese PMIs should support the recent rebound, but the wave of risk aversion is keeping sellers bullish.

AUD / JPY continues to rebound from a one-week low around 80.35, picking up offers lately during Thursday’s Asian session.

The pair fell to the week’s low the day before, extending Tuesday’s pullback from a three-week high, amid risk aversion. However, the bears were recently polled amid mixed signs, as well as cautious sentiment ahead of important data from Australia’s key client China.

News of AstraZeneca’s covid vaccine showing 74% effectiveness in the large US trial fights a 50% jump in already record-breaking daily coronavirus cases from Victoria in Australia to challenge earlier risk aversion. On a related note, the optimism of US House Speaker Nancy Pelosi in overcoming the deadlock over the US stimulus and debt ceiling issues contrasts with the recent challenges to the bills, raised by the party’s own members.

It should be noted that the pessimism surrounding China remains intact ahead of crucial monthly activity data, as not only does the Evergrande saga, but the power outage issues also call into question Beijing’s economic recovery from the pandemic.

Elsewhere, concerns from the US Federal Reserve (Fed), also joined by major Western central banks, underpin the risky mood amid worries about the virus. Despite this, Japan’s drive to end covid emergencies in Tokyo and 18 prefectures leaves buyers hopeful.

Against this backdrop, S&P 500 futures rise 0.40% at time of release while 10-year US Treasury yields decline 2.5 basis points to 1.51%, prolonging the decline in the standby versus a one-year high.

Going forward, official PMI data from China and Caixin will be important for AUD / JPY as the quote struggles for clear direction. The official NBS manufacturing PMI is expected to remain unchanged at 50.1 while Caixin’s manufacturing PMI carries an optimistic forecast for August, at 49.5 from 49.2 previously. Also, the non-manufacturing PMI may drop from 47.5 to 52.7 in the month shown. Although the market consensus points to a recovery in China, the likelihood of a negative surprise cannot be ruled out, which in turn could weigh on prices for the pair.

Technical analysis

Failures to break through the 200-day EMA earlier in the week, around 81.00 at press time, steer AUD / JPY towards July low around 79.85.

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