AUD/USD rebound approaches 0.7000 amid cautious optimism ahead of US inflation

• AUD/USD picks up bids to refresh intraday high, extends corrective pullback from two-year low.
• Softer yields, mildly positive stock futures portray risk-on impulse.
• China, Fedspeak favor buyer despite downbeat NAB numbers from Australia.
• US/China inflation, Fedspeak and Aussie Westpac Consumer Confidence will be crucial to watch for clear directions.

AUD/USD takes clues from a slightly positive market mood while consolidating recent losses with a bounce off a two-year low, flashed earlier in Asia. That said, the Aussie pair renews intraday high around 0.6985 heading into Tuesday’s European session.

Market sentiment improves amid a lack of further negatives from Russia and China, even as Shanghai suspends its last two available subway lines due to a covid outbreak. Also favoring the risk-on mood could be the extended pullback in the US Treasury yields from the highest levels since late 2018, flashed the previous day.

It’s worth noting that comments from China’s Vice Premier Liu He who reiterated the country’s dynamic covid zero policy and offers the much-needed relief to the US stock futures around the yearly low.

On the other hand, the US 10-year Treasury bond coupons renewed multi-day high the previous day before retreating from 3.20%, down three basis points to 3.05% by the press time.

The pullback in yields could be linked to the mixed comments from the Fed policymakers as Atlanta Fed’s Raphael Bostic promoted a series of 50bps rate lifts but Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table during their recent speeches.

Also underpinning the AUD/USD rebound is the latest fall in the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. The inflation gauge dropped the most in 10 months to retest early March levels on Monday.

Looking forward, speeches from US President Joe Biden and Treasury Secretary Janet Yellen will join the Fedspeak to direct intraday moves of the AUD/USD pair. However, major attention will be paid to Wednesday’s US CPI ex Food & Energy for April, expected 6.0% YoY versus 6.5% prior, as well as China’s inflation numbers for April and Australia’s Westpac Consumer Confidence figures for May.

Technical analysis

Oversold RSI conditions join a downward sloping trend line from December 2021, around 0.6905, to activate the AUD/USD pair’s latest rebound. The upside momentum, however, remains doubtful unless crossing the monthly resistance line, close to 0.7215 by the press time.