AUD/USD retreats towards 0.7200 despite ex-RBA Governor’s hawkish expectations

• AUD/USD fades the previous day’s rebound from a fortnight low.
• Sour sentiment, firmer US Treasury yields favor bears amid a light calendar.
• Ex-RBA Governor Macfarlane favors faster rate hikes, expects more inflation woes.
• China’s diplomats fear a slowdown in global demand.

AUD/USD remains mildly offers around 0.7220-25 as bears jostle with the buyers amid mixed sentiment and cautious mood ahead of the week’s key data/events. In doing so, the Aussie pair struggles to justify hawkish comments from the former Governor of the Reserve Bank of Australia (RBA) Ian Macfarlane.

Ex-RBA Governor Macfarlane warned over persistently high inflation and the need to sharply hike rates in early Wednesday. The former policymaker also mentioned, “There is enough scarcity in Australia and in the US to keep the rate of inflation high.”

Also read: Ex-RBA Governor Macfarlane: Interest rates could rise sharply in order to fight inflation

On the contrary, China’s Vice Commerce Minister Wang Shouwen joined China’s Vice Finance Minister Zou Jiayi to renew fears of global economic slowdown, as well as fears of receding demand. The policymakers were recently in agreement over a belief that the global demand growth is slowing.

Also read: China’s Vice Commerce Minister: Foreign trade faces uncertainties and huge pressure

It’s worth noting that recovery in the US Treasury yields and anxiety ahead of Thursday’s European Central Bank (ECB) meeting, as well as Friday’s US Consumer Price Index (CPI) for May, seems to grind the AUD/USD pair’s moves.

That said, US 10-year Treasury bond yields rise two basis points (bps) to 2.99% after snapping a six-day downtrend the previous day. A record slump in the US trade deficit and hopes of an upbeat US budget seemed to have recalled the US Treasury bond sellers. The US trade deficit for April marked the historical fall of 19.1% to USD87.1bn the previous day.

Elsewhere, US Treasury Secretary Janet Yellen and hopes of faster economic recovery in China tried to defend the market optimists. On Tuesday, US Treasury Secretary Yellen testified on the Fiscal Year 2023 Budget before the Senate Finance Committee while saying that the US economy faces challenges from "unacceptable levels of inflation", as well as headwinds from supply chain snags. The policymaker added, “An appropriate budget is needed to complement Fed’s actions to tame inflation without harming the labor market.”

It should be noted that comments from World Bank (WB) President David Malpass who warned that faster-than-expected tightening could push some countries into a debt crisis similar to the one seen in the 1980s seemed to have weighed on the quote of late. On the same line could be the risk-negative news from Ukraine. “Kyiv says it has not yet reached any agreement with Russia or Turkey to allow the safe passage of its grain ships in the Black Sea, injecting skepticism into a push by the U.N. to create a vital food corridor,” said Politico.

Technical analysis

A fortnight-old support line defends AUD/USD buyers at around 0.7205. However, the 200-DMA and the recent peak, respectively around 0.7255 and 0.7285, will challenge the Aussie pair’s upside before giving control to the bulls.