AUD/USD retreats towards 0.7200 ahead of Aussie employment, PBOC

• AUD/USD consolidates the heaviest daily gains in a week, fades bounce off six-week-old support.
• Pullback in US Treasury yields initially favored buyers but US President Biden’s comments renewed risk-off mood.
• Biden signaled various concerns ranging from Fed to Russia to China suggesting challenges for risk appetite.
• Australia Inflation Expectations, jobs reports and PBOC interest rate will be the key to watch.

AUD/USD takes a U-turn from the weekly top towards 0.7200 during the initial Asian session on Thursday, having cheered softer US Treasury yields the previous day.

The Aussie pair’s latest pullback could be linked to US President Joe Biden’s press conference as the US Leader signals Fed rate hike, Sino-American tussles and geopolitical hardships. Also exerting downside pressure on the AUD/USD prices is the cautious sentiment ahead of the key Australia employment data for December, as well as Inflation Expectations for January, not to forget the interest rate announcement by the People’s Bank of China (PBOC).

Although US President Biden highlights Chief Trade negotiator Katherine Tai’s efforts to placate Sino-American trade tussles, he also mentioned that the US is “'not there yet' on possible easing of tariffs on Chinese goods”. Biden also said, “China is not meeting its purchase commitments.”

Further, comments favoring Federal Reserve (Fed) Chairman Jerome Powell’s push to recalibrate the support also raised concerns over faster rate hikes and balance sheet normalization, which in turn exerted additional downside pressure on the AUD/USD prices.

Additionally, US President Biden directly warned Russia not to invade Ukraine and if they do they’ll lose access to the US dollar.

Read: US President Biden: Inflation has everything to do with supply chain

With the aforementioned headlines suggesting challenges to the market sentiment, the risk barometer AUD/USD couldn’t be saved and pared the previous day’s gains, the first in the week.

Before that, the easing in the US Treasury yields and Australia PM Scott Morrison’s hope of overcoming the grave virus conditions, with the record death toll, seemed to have favored the AUD/USD prices. Also favoring the quote were the strong gold prices that rallied the most since early November to post a three-month high.

It should be noted that firmer US housing numbers helped equities to consolidate earlier losses but couldn’t save the US bond yields that initially refreshed the two-year top.

That said, AUD/USD pair’s further weakness hinges upon the monthly inflation expectations and jobs report, not to forget the PBOC rate actions.

Forecasts suggest, Australia's Employment Change may ease to 30K versus 366.1K prior while the Unemployment Rate is likely to ease to 4.5% versus 4.6%. The same suggests that the labor market is strong enough to help RBA keep the hawkish bias. However, the Consumer Inflation Expectations should overcome the 4.8% prior to favor the bulls. Also, the PBOC is widely expected to act in regards to the 3.8% benchmark rate, which if happens may help the AUD/USD to recover some of the latest losses.

Read: Australian Employment Preview: Aussie unlikely to benefit from a strong jobs report

Technical analysis

Despite bouncing off a seven-week-old support line, AUD/USD fails to cross the 100-SMA on the four-hour chart.

The pullback move gains support from RSI retreat and sluggish MACD, which in turn hints at further drop towards the 200-SMA and the stated support line, respectively near 0.7190 and 0.7180. It’s worth noting, however, that a clear downside break of the 0.7180 will drag AUD/USD towards the monthly low of 0.7129 and August 2021 trough surrounding 0.7105.

Meanwhile, the monthly horizontal resistance near 0.7180 acts as an extra hurdle to the north even if the AUD/USD prices manage to cross the immediate SMA resistance surrounding 0.7225.