AUD/USD retreats from 5-month highs around 0.7063, meanders around 0.6950s

• After bad US data, AUD/USD reversed its course and dived below 0.7000.
• Federal Reserve officials pushed back against interest rates peaking below 5%.
• AUD/USD Price Analysis: FAilres at 0.7000, exacerbated the fall toward 0.6960s.

AUD/USD erases its earlier gains after hitting a multi-month high at 0.7063, plunges below 0.7000, and turning down in the day by 0.27%. Risk appetite deteriorated amidst the lack of catalyst, though US data showed the economy is decelerating, which could have been the reason for sentiment shifting sour. The AUD/USD is trading at 0.6961.

US economic indicators were worse than expected but bolstered the USD

Wall Street is registering losses between 0.77% and 1.21%. Retail Sales for December in the United States (US) were reported by the Commerce Department, with figures shrinking by 1.1% MoM, more than the 0.8% contraction estimated and worst than November’s downward revision to 1%. On an annual basis, sales were unchanged at 6%.

At the same time, the Department of Labor (DoL) revealed that the Producer Price Index (PPI) for December plunged to -0.5% MoM, smashing estimates of 0.1%. Year-over-year figures rose by 6.2%, beneath forecasts of 6.8%, while core PPI advanced 5.5%, vs. 5.7% estimates.

Aside from that, the Federal Reserve reported that Industrial Production in the US decreased -0.7% in December and -1.7% in Q4. Additionally, US manufacturing output fell -1.3% last month, albeit November’s data was downward revised -1.3%.

Elsewhere a slew of Federal Reserve officials, led by the St. Louis Fed President James Bullard, crossed wires. Bullard said policymakers should get “as quickly” as they can rate above 5%. Echoing some of his comments, Cleveland’s Fed President Loretta Mester said that rates need to rise “a little bit” above 5%, emphasizing that it would be needed according to her projections.

After those remarks, the AUD/USD reversed its course after trading above the 0.7000 mark. No catalyst spurred the market’s reaction, only hawkish comments by Fed officials, which had been repeated since the beginning of the year.

AUD/USD Price Analysis: Technical outlook

From a technical perspective, the AUD/USD daily chart is forming an inverted hammer, which, if it closes below Tuesday’s open of 0.697, would exacerbate a deeper pullback, with the 20-day Exponential Moving Average (EMA) at 0.6863 as the first support. AUD/USD price action achieved successive series of higher highs, while the Relative Strength Index (RSI) failed to crack its previous peak. So, a negative divergence between price action and the RSI could pave the way for further downside.

The AUD/USD key support levels would be the January 17 low of 0.6929, followed by the January 12 daily low of 0.6869, ahead of the abovementioned 20-day EMA at 0.6863.