AUD/USD retreats towards 0.7150 despite better-than-forecast Australia Q1 GDP

• AUD/USD takes offers to pare daily gains after Australia’s first quarter GDP.
• Aussie Q1 GDP rose past 0.7% QoQ and 3.0% YoY market consensus.
• Firmer US dollar, yields test upside momentum amid mixed clues over inflation.
• US ISM Services PMI, risk catalysts in focus for fresh impetus.

AUD/USD reverses the early Asian session gains as it drops to 0.7170 following the Aussie Q1 GDP release on Wednesday. In doing so, the Aussie pair seems to respect the firmer US dollar.

Australia’s first quarter (Q1) Gross Domestic Product (GDP) rose by 0.8% versus 0.7% expected and 3.4% prior. The annualized GDP also increased 3.3% compared to 3.0% YoY market consensus and 4.2% previous readouts. The firmer-than-expected Aussie GDP numbers couldn’t help AUD/USD prices to consolidate the previous day’s losses, the biggest in a week, around a one-month high.

Read: Australia Q1 GDP stronger than expected, supportive of AUD

It’s worth noting that doubts over the Fed’s next moves, despite recently hawkish rhetoric keeps the risk barometer pair on the front foot despite the US dollar’s latest rebound from the monthly low.

That said, the US Dollar Index (DXY) rise 0.12% intraday to 101.83 at the latest, stretching the previous day’s U-turn from a one-month low. The reason for the greenback’s strength could be linked to comments from US Treasury Secretary Janet Yellen and Atlanta Fed President Raphael Bostic, suggesting further tightening of policies at the Fed.

“US Treasury Secretary Janet Yellen said on Tuesday that she was wrong in the past about the path inflation would take, but said taming price hikes is President Joe Biden's top priority and he supports the Federal Reserve's actions to achieve that,” said Reuters. On the other hand, Fed’s Bostic crossed wires during an interview with MarketWatch as he said that his suggestion that the central bank takes a September “pause” in its push to raise interest rates should not be construed in any way as a “Fed put,” or belief that the central bank would come to the rescue of markets.

Also weighing on the gold prices could be comments from US President Joe Biden as he said, “If Russia does not pay a heavy price for its actions, it will send a message to other would-be aggressors that they too can seize territory and subjugate other countries,” per The New York Times.

Against this backdrop, the US Treasury yields underpin the US dollar rebound, up two basis points to 2.86% by the press time. However, the S&P 500 Futures rise half a percent near 4,150 and probe gold sellers.

That said, AUD/USD bears need validation from the US ISM Manufacturing PMI for May, expected 54.5 versus 55.4 prior, as well as Fedspeak.

Technical analysis

The AUD/USD pair’s pullback the previous day portrays a rising wedge bearish chart pattern on the four-hour play. The downside bias also gains support from the RSI (14) retreat. However, the 200-SMA offers an additional barrier to the south around 0.7120, in addition to the stated wedge’s support line near 0.7135.

On the flip side, recovery moves need to reject the wedge formation, by crossing the 0.7220 immediate hurdle, to convince short-term buyers.