AUD/USD fails to hold on to recovery gains, turns red below 0.6850

• Upbeat PMI data from China helps Aussie recover its losses.
• Broad-based USD strength keeps the pair's upside limited.
• Coming up: Markit and ISM US Manufacturing PMI reports.

The AUD/USD pair slumped to its lowest level since January's flash crash at 0.6829 but staged a modest recovery as the upbeat data from China helped antipodeans gather strength. However, the broad-based USD strength made it difficult for the pair to preserve its momentum and forced it to return into the negative territory. As of writing, the pair was down 0.15% on the day at 0.6835.

Earlier today, the Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) for July improved to 49.9 in July from 49.4 in June and beat the market expectation of 49.6. 

Chairman Powell's tone lifts USD

Federal Reserve Chairman Powell's remarks yesterday disappointed investors who were hoping for an aggressive dovish tone. Powell said the 25 basis points rate cut was unlikely to be the start of a lengthy rate cut cycle. “There is definitely an insurance aspect to it,” Powell explained. The US Dollar Index surged to its highest level in more than two years at 98.93 on the back of these comments today and was last seen adding 0.3% on the day at 98.87.

Assessing Powell's comments, “Powell sought to manage expectations for further aggressive rate cuts," ABN AMRO senior economic Bill Dİviney said.

"When questioned on whether one 25bp cut would be enough, he emphasised the path the FOMC has been on since the beginning of the year, moving from a hiking bias, to a neutral stance, and then to an easing bias – and how this by itself had provided significant stimulus by easing financial conditions.”

Later in the session, the IHS Markit and the ISM both will be publishing the July Manufacturing PMI reports. In the early trading hours of the Asian session, Retail Sales and Producer Price Index (PPI) data from Australia will be looked upon for fresh impetus.

Technical levels to watch for