AUD/USD fades corrective pullback near 0.7200 despite strong China Caixin Manufacturing PMI

• AUD/USD seesaws around intraday high, pares biggest daily loss in a month.
• China Caixin Manufacturing PMI rose past market forecasts in December.
• Risk appetite stays weaker as virus woes, Fed rate-hike concerns keep US bond yields firmer.
• Aussie virus infections refresh record top, fears of supply crunch of testing kits loom.

AUD/USD takes rounds to 0.7200, easing from intraday high, following China’s Caixin Manufacturing PMI release on early Tuesday.

The Aussie pair dropped the most in four weeks the previous day as yields propelled the US dollar. The recent corrective pullback, however, remains doubtful as bond coupons refrain from stepping back amid fears of the South African covid variant, namely Omicron.

That said, China’s Caixin Manufacturing PMI crossed 50.0 market consensus and 49.9 prior levels to print 50.9 level in December.

In addition to the strong activity numbers from the major customer, signals for further easy money policies from the People’s Bank of China (PBOC) favored by Bloomberg’s analysis as well as the latest jump in the covid numbers, also favor AUD/USD prices.

However, the worsening virus conditions at home and abroad join firmer hopes of the faster Fed rate lifts in 2022 to propel the US T-bond yields and weigh on the quote.

It’s worth noting that Australia’s national count of daily covid infections crossed 40K during the latest run-up to refresh record tops while conditions in the US aren’t any better. “COVID worries have been front and center once again for investors since the start of the holiday season. The number of new COVID-19 cases has doubled in the last seven days to an average of 418,000 a day, mostly attributed to the highly transmissible but milder Omicron variant,” according to a Reuters tally.

In addition to the virus woes, fears of a labor shortage also test AUD/USD bulls. As per the latest updates from the National Australia Bank’s (NAB) survey of 1600 business houses, “About four in 10 businesses are suffering ‘very significant’ impacts from labor shortages."

Elsewhere, the US inflation expectations, as per the 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED), jumped to a fresh high in six weeks to portray further prices pressure ahead, allowing Fed hawks to keep controls.

Against this backdrop, the US 10-year Treasury yields stay firmer around a six-week high while the US stock futures remain directionless. Further, stocks in Asia-Pacific trade mixed even as the Wall Street benchmarks rose the previous day.

Moving on, today’s US ISM Manufacturing PMI for December, expected 60.2 versus 61.1, will offer immediate direction to the AUD/USD prices. However, major attention will be given to the Fed rate-hike concerns and virus updates for clear direction.

Technical analysis

AUD/USD fades bounce off 0.7180 key support confluence, including the 21-DMA and support line of the short-term rising wedge formation. Should the quote breaks 0.7180, theory suggests AUD/USD prices mark a 300-pip slump. However, 0.7090 and 2021 bottom surrounding the 0.7000 psychological magnet may offer intermediate halts during the fall.

Alternatively, 50-DMA and the upper line of the stated wedge, close to 0.7255 and 0.7280, restrict short-term recovery moves of the AUD/USD.