AUD/USD fades recovery moves above 0.6700 ahead of RBA Bulletin, Australia Trade Balance

• AUD/USD stays defensive after bouncing off one-week low.
• Headlines from Russia, pre-data anxiety challenge Aussie pair buyers.
• Optimism surrounding China contrasts with downbeat data to also test upside momentum.
• Light calendar elsewhere, Fed policymakers’ blackout could allow AUD/USD bulls to keep the reins even if Aussie data disappoints.

AUD/USD struggles to defend the latest bullish impulse around 0.6725-30, after bouncing off a one-week low the previous day, as traders await updates/data from Australia during early Thursday. Also likely to have challenged the Aussie pair buyers could be the latest swing in the market’s sentiment, mainly due to Russian President Vladimir Putin’s comments and headlines from the US Congress.

Russian President Putin teased a nuclear war by saying that nuclear weapons could be used to defend itself and its allies. On the other hand, Bloomberg came out with the news suggesting more tension between the US and China due to the latest bills the US Congress is up for passing. “The US is set to pass legislation revamping US policy toward Taiwan and restricting government use of Chinese semiconductors, moves that appear certain to antagonize Beijing even as President Joe Biden seeks to ease tensions,” said Bloomberg.

Previously, the US Dollar traced downbeat Treasury bond yields to snap a two-day uptrend and favor the AUD/USD bulls. That said, the benchmark 10-year Treasury bond yields dropped to the lowest levels since early September by losing 3.30% in a day to 3.42% level at the latest. Further, the two-year counterpart dropped 2.54% to the 4.26% mark. With this, the US Treasury bond yield curve, the difference between the long-dated and the short-term bond yields, inverted the most in over forty years.

The US Dollar Index (DXY), on the other hand, dropped 0.37% to 105.17 by the end of Wednesday’s North American session. The DXY weakness could also be linked to the softer US data, namely the trade balance and Unit Labour Costs for the third quarter (Q3).

It should be noted that China’s easing of the three-year-long Zero-Covid policy and readiness for more monetary and fiscal measures to stimulate the economy also helped the AUD/USD bulls.

Alternatively, downbeat prints of Australia’s Q3 Gross Domestic Product (GDP) and China's Trade Balance for November could be noted as the key upside barriers.

Looking forward, AUD/USD traders may witness further hardships in extending the latest upside. However, the Reserve Bank of Australia (RBA) Bulletin and Aussie Trade Balance for October could help the bulls in case of positive outcomes. Following that, US weekly jobless claims and risk catalysts will be crucial for clear directions.

Technical analysis

A clear rebound from the 100-DMA, around 0.6680 by the press time, keeps AUD/USD buyers hopeful. However, a convergence of the two-week-old ascending trend line and the 61.8% Fibonacci retracement level of the June-October downside, near 0.6860, appears a tough nut to crack for the bulls.