AUD/USD seesaws around yearly low near 0.6900, US/China inflation, Aussie data eyed

• AUD/USD fades bounce off yearly low, remains depressed after four-day downtrend.
• Fed’s Mester, mixed headlines from China and Russia kept traders recalled the bears.
• US/China scheduled for April inflation release, Aussie Westpac Consumer Confidence up for publishing too.
• Pre-Inflation anxiety could restrict market moves, risk catalysts are important for fresh impulses.

AUD/USD prices hold onto the four-day-old downward trajectory, taking rounds to the yearly low of 0.6910 flashed before a few hours during Wednesday’s initial Asian session. In doing so, the risk-barometer pair portrays the market’s cautious mood ahead of the key inflation data from China and the US, as well as Australia’s Westpac Consumer Confidence.

The Aussie pair’s latest south-run could be linked to the increasing chatters surrounding the Fed’s 75 basis points (bps) rate hike, as well as China’s covid-linked lockdowns and “Zero Covid Tolerance” policy. Also weighing on the quote are the tales of the Russia-Ukraine war and likely negative implications of the same.

On Tuesday, multiple Fed policymakers crossed wires to convey their take on the US central bank’s next moves. Most of them, including Federal Reserve Bank of Richmond President Thomas Barkin and NY Fed President John Williams, backed a 50 bps rate hike. However, comments from Cleveland Fed President and FOMC member Loretta Mester recalled the bears as she said, “They don't rule out a 75 basis points rate hike forever”.

Elsewhere, China’s resistance to ease activity restrictions due to the covid outbreak and little leeway over the zero-tolerance policy challenged the global supply chain matrix, which in turn negatively affects the risk appetite and the AUD/USD prices. Also weighing on the market’s mood, as well as the pair prices, are headlines concerning Russia and Ukraine where the war becomes a stalemate, per the US Defense Agency.

Amid these plays, the US 10-year Treasury yields stretched the week-start pullback from a two-year high whereas the Wall Street benchmarks closed mixed, began the day on a positive side before losing the charm and then regained some.

Looking forward, Australia’s Westpac Consumer Confidence for May, prior -0.9%, appears as the first key data of the day, followed by April month Consumer Price Index (CPI) and Producer Price Index (PPI) for China, expected 1.8% and 7.7% YoY respectively versus 1.5% and 8.3% previous readouts in that order. However, major attention will be given to the US CPI data as markets expect the first softer inflation reading, 8.1% YoY versus 8.5% prior, in many years to push back the reflation and growth fears. Hence, any disappointment from the key inflation numbers will be another boost to the market’s risk-off mood, which could open the door for the AUD/USD pair’s further downside, mainly due to the pair’s risk-barometer status and the USD’s safe-haven appeal.

Also read: US CPI Preview: Hard core inflation to propel dollar to new highs, and two other scenarios

Technical analysis

January 2022 low surrounding 0.6965-70 restricts any corrective pullback of AUD/USD prices, which in turn join bearish MACD signals to suggest further downside of the quote towards mid-June 2020 low surrounding 0.6775.