AUD/USD bulls pressured at key trendline support

• AUD/USD bears test trendline support that guards against a break to test 0.6500 as illustrated above. 
• Fed sentiment and RBA in focus as the driver.

AUD/USD fell from resistance by some 1% on Friday with the US Dollar moving up from a one-year low as measured by the DXY index as traders derisked on inflation concerns. AUD/USD dropped between a high of 0.6805 and a low of 0.6695.  

It's a mixed bag of sentiment out there with US data disappointing yet hawks and US Dollar bulls finding elements from within to support a hawkish narrative surrounding the Federal Reserve. Fed´s Governor Christopher Waller said on Friday that despite a year of aggressive rate increases, US central bankers "haven't made much progress" in returning inflation to their 2% target and need to move rates higher still.

Additionally, March Retail Sales components were not as weak as some economists had feared. Core retail sales, which correspond most closely with the consumer spending component of gross domestic product, slipped 0.3% last month. However, despite March's fall, the gains in January and February put consumer spending firmly on track to accelerate in the first quarter. This led to the greenback bouncing back to life with the DXY adding 0.57% on the day at 101.53, after falling to 100.78, the lowest since last April. 

Other Fed officials also crossed the wires with Atlanta Fed President Raphael Bostic saying one more quarter-percentage-point interest rate hike can allow the Fed to end its tightening cycle while Chicago Fed President Austan Goolsbee said that a US recession is certainly feasible. Consequently, Fed funds futures traders are pricing in an 81% probability that the Fed will hike by an additional 25 basis points at its May 2-3 meeting.

Meanwhile and domestically, traders will look to the Reserve Bank of Australia´s minutes. Analysts at TD Securities noted that in recent speeches, governor Phillip Lowe and deputy governor Michele Bullock made it clear that the RBA wanted to pause to assess the impact of the rapid rate hikes and the economic outlook. ´´Thus, we expect the Minutes to follow closely to their speeches and don't expect any surprises. Again, the Minutes will emphasize the "long and variable lags" of monetary policy and the uncertainty from the mortgage roll-off.´´

Analysts at ANZ Bank explained that resilience and green shoots were the themes of this week’s data prints across the labour market, business conditions and housing. ´´We see risks to inflation as tilted up and, in our CPI preview, forecast trimmed mean, non-tradables and services inflation will all annualise above 6% in Q1. But we don’t think this will be enough for the RBA to move in May.´´

AUD/USD technical analysis

The bears have moved in on trendline support that guards against a break to test 0.6500 as illustrated above.