AUD/USD flirts with 0.6950 despite upbeat China inflation, focus on US CPI

• AUD/USD picks up bids to renew intraday high on firmer-than-expected China data.
• China CPI rose 2.1%, PPI grew 8.0% in April versus 1.8% and 7.7% respective forecasts.
• Risk appetite remains weak amid anxiety ahead of US inflation release, hawkish Fedspeak strengthens cautious mood.
• Headlines from China and Russia will join pre-CPI Fed policymakers’ comments to entertain traders.

AUD/USD holds onto the corrective pullback from the yearly low by crossing the 0.6950 level after China’s headline inflation was released during Wednesday’s Asian session. It’s worth noting, however, that the market’s anxiety ahead of the key US CPI data and mixed concerns over the key risk catalysts test the recovery moves.

That said, China’s Consumer Price Index (CPI) rose past 1.8% market consensus to 2.1% YoY whereas the Producer Price Index (PPI) crossed 7.7% expectations with the 8.0% yearly figures.

Read: Breaking: Chinese inflation data beats but does little to move the needle in an embattled AUD

Earlier in the day, Australia’s Westpac Consumer Confidence dropped for the sixth consecutive time while flashing -5.6% figures for May, versus -0.9% prior.

Also weighing on the AUD/USD prices, in addition to the aforementioned data, were comments from the Fed policymakers. Recently, Atlanta Fed President Raphael Bostic mentioned that the US economy is strong and demand is high while also expecting the neutral rate at 2.0-2.5%.

Before that, Cleveland Fed President and FOMC member Loretta Mester recalled the market bears as she said, “They don't rule out a 75 basis points rate hike forever”.

On a different page, China sticks to its “Zero Covid Tolerance” policy despite the World Health Organization’s (WHO) push to ease the rigid activity restrictions in Shanghai and Beijing. The lockdowns in the world’s largest industrial player and Australia’s biggest trading partner pose a serious threat to the AUD/USD prices.

Elsewhere, the tales of the Russia-Ukraine war and its likely negative implications also keep AUD/USD sellers hopeful. As per the latest updates, Europe needs to divert its gas flow from Russia which previously used to arrive via Ukraine.

Against this backdrop, the US 10-yer Treasury yields remain pressured around 2.99% whereas the S&P 500 Futures print mild losses near the 4,000 level after a mixed closing on Wall Street.

Given the mixed bag of data and recently cautious markets, AUD/USD traders will keep their eyes on the US CPI for fresh impulse. While the headline CPI is expected to ease to 8.1% from 8.5%, a major focus will be on the US Consumer Price Index ex Food & Energy figures which are likely to ease to 6.0% YoY versus 6.5% prior.

Should the inflation figures refrain from easing for May, the US dollar will witness magnified buying, which in turn will drag AUD/USD towards a fresh multi-month low.

Technical analysis

Although oversold RSI conditions challenge further downside of the AUD/USD prices, January 2022 low surrounding 0.6965-70 restricts any corrective pullback of the pair. On the downside, there prevails a smooth road to the mid-June 2020 low surrounding 0.6775.