AUD/USD drops to near 0.6900 as risk-on eases, focus shifts to Fed Powell’s speech

• AUD/USD has corrected to near 0.6900 as investors have turned cautious ahead of Fed Powell’s speech.
• The USD Index is expected to continue its downside momentum as the overall sentiment is still solid.
• Australia’s monthly CPI and Retail Sales data will be keenly watched.

The AUD/USD pair has sensed solid barricades while attempting to extend a rally above the critical resistance of 0.6950 in the New York session. The Aussie asset has corrected to near 0.6900 as a firmer rally is generally followed by a healthy correction, therefore, it would be ideal not to consider the correction a bearish reversal.

Optimism in the global market eased vigorously as investors are shifting their focus toward the release of the United States Consumer Price Index (CPI) data, which is scheduled for Thursday. S&P500 witnessed a corrective move on late Monday after a stretch of Friday’s solid rally, portraying a caution in the overall upbeat market mood.

The US Dollar Index (DXY) has gauged immediate support above 102.50, however, an absence of follow-up recovery indicates that more steam is still left in USD Index bears. Meanwhile, the demand for US government bonds remained solid, which led to a further drop in the 10-year US Treasury yields to 3.53%.

Investors are shifting their focus toward the speech from Federal Reserve (Fed) chair Jerome Powell, which is scheduled for Tuesday. The speech from Fed Powell will provide cues about the likely monetary policy to be taken in February’s monetary policy meeting. Apart from that, fresh projections on the terminal rate after a slowdown in economic activities in the United States economy and a drop in wage inflation will be of utmost importance.

On the Aussie front, the Australian Dollar will remain in action ahead of the release of the monthly CPI data, which is scheduled for Wednesday. As per the consensus, the annual CPI (Nov) will escalate to 7.3% vs. the prior release of 6.9%. Also, the Australian Retail Sales data will hog the limelight, which is seen higher at 0.7% against the former figure of -0.2%.