- AUD/USD struggles to extend the previous day’s upside momentum.
- China’s CPI, PPI both dropped below market consensus and prior in December.
- Inflation anxiety, covid fears weigh on market sentiment.
- US CPI will be crucial after Powell’s testimony failed to impress Fed hawks.
AUD/USD remains sidelined around 0.7210, fading the previous day’s upside momentum during early Wednesday. The pair’s recent inaction could be linked to the market’s cautious sentiment ahead of the US inflation data, as well as downbeat China CPI and PPI figures. Also challenging the pair buyers are the virus woes at home and abroad.
China’s headline Consumer Price Index (CPI) eased below 1.8% forecast and 2.3% prior to 1.5% YoY while the MoM readings also dropped to -0.3% compared to +0.2% expected and +0.4% previous readouts. Additionally, the factory-gate inflation, namely the Producer Price Index (PPI) also dropped below 11.1% expected and 12.9% prior, to 10.3% YoY for December.
Read: China CPI misses the mark, AUD unchanged on the outcome, so far
It’s worth noting that Australia's Job Vacancies for three months to November jumped past -9.8% prior to 18.5% QoQ during early Asia and favored the pair's upside momentum.
Prior to that, the risk barometer pair cheered Fed Chair Jerome Powell’s measured Testimony that showed readiness to hike interest rates but remained cautious over balance sheet normalization. Fed’s Powell also expected that the supply crunch will ease somewhat and the economic impact of the Omicron variant will be short-lived, which in turn offered additional help to the AUD/USD buyers the previous day.
However, downbeat economic forecasts from the World Bank (WB) and mixed US data from Australia, as well as the US, tamed the AUD/USD bulls on Tuesday. The WB cited coronavirus woes to cut the global GDP expectations for 2022 to 4.1% from 4.3% previous estimations. The World Bank also trimmed the US and Chinese economic forecasts, by 0.5% to 3.7% and by 0.3% to 5.1% in that order, for 2022.
It’s worth noting that a mixed scenario portrayed by Australia Retail Sales, Trade Balance and sentiment data from the US also challenged the AUD/USD bulls. That said, Australia's Retail sales jumped past 4.9% prior and 3.9% forecast to 7.3% in November while the Trade Balance eased to 9423M versus 10600M expected and 10781M prior. Elsewhere, US NFIB Business Optimism Index rose past 98.4 to 98.9 for December while IBD/TIPP Economic Optimism for January eased to 44.7 versus 48.4 previous readouts.
Additionally, a fresh record high of the daily covid infections in Australia, with the latest 98,538 figures, joins the announcement of public health emergency in Washington DC to probe the AUD/USD buyers.
Amid these plays, US 10-year Treasury yields remain pressured around 1.741% whereas S&P 500 Futures struggle to track the Wall Street gains, unchanged around 4,705 by the press time.
Having witnessed a disappointment from China, AUD/USD traders will keep their eyes on the US inflation report as a stronger price pressure should mark a double-attack on the pair’s upside momentum considering the recently hawkish expectations from the Fed. On the same line were firmer US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, which jumped the most in two months the previous day.
Read: US Consumer Price Index December Preview: The Fed’s die is cast
Technical analysis
AUD/USD seesaws around 100-SMA level of 0.7210 while stepping back from the previous support line from December 03, near 0.7220 by the press time.
However, the higher lows of prices and RSI join the sustained bounce off 200-SMA level surrounding 0.7165 to keep the Aussie pair buyers hopeful to overcome the immediate resistance near 0.7220. As a result, tops marked in a fortnight around 0.7275-80 will be crucial on the clear break of 0.7220.
