AUD/USD retreats towards 0.6950 ahead of RBA Governor Lowe’s speech, US Retail Sales

• AUD/USD fades upside momentum after refreshing one-week high, probes two-day winning streak.
• US Dollar traces yields to rebound despite softer US inflation data, hawkish Fed talks are the key.
• RBA’s Lowe should be observed amid hawkish rate hike and mixed monetary policy statement, as well as upbeat data.
• Strong US numbers could justify hawkish Fed and keep the Aussie bears hopeful.

AUD/USD prints mild losses around 0.6980, the first in three days, as market players await the next round of catalysts during early Wednesday after the US inflation data offered a volatile Tuesday. Other than the cautious mood ahead of the data/events, recently hawkish Federal Reserve (Fed) comments also weigh on the risk-barometer Aussie pair.

Most of the Fed policymakers were in favor of further rate hikes even as the US inflation failed to match “positive surprise” hopes. The same propelled the US Treasury bond yields and US Dollar. At home, upbeat Aussie data and cautious optimism allowed the quote to remain firmer before the US data.

That said, Australia’s NAB Business Confidence rose to 6.0 in January, from -1.0 prior and 1.0 expected while the NAB Business Conditions rallied to 18.0 compared to 8.0 expected and 12.0 prior. It’s worth noting that Australia’s Westpac Consumer Confidence, flashed earlier on Tuesday, dropped to -6.9% for February versus 5.0% prior.

On the other hand, US Consumer Price Index (CPI) rose past market expectations to 6.4% YoY but posted the slowest increase since 2021 while easing below 6.5% prior. More importantly, CPI ex Food & Energy, better known as the Core CPI, grew 5.6% YoY compared to 5.5% market forecasts and the 5.7% previous readings. Following the data, the US Dollar renewed its intraday low before the Federal Reserve (Fed) talks propelled the US Treasury bond yields and the US Dollar.

Despite the unimpressive increase in inflation, Dallas Federal Reserve President Lorie Logan stated that they must remain prepared to continue rate increases for a longer period than previously anticipated. On the same line was New York Fed President John Williams who noted that the work to control too high inflation is not yet done. Additionally, Philadelphia Fed President Patrick Harker signaled that they are not done (with lifting rates), but they are likely close.

Against this backdrop, US 10-year Treasury bond yields seesaw around 3.75%, up three basis points (bps) after refreshing a six-week high, which in turn allowed the US Dollar to bounce off one week to end the day on a positive side. Further, Wall Street closed mixed even after the mostly upbeat performance of the Asian and European markets.

Looking ahead, Reserve Bank of Australia (RBA) Governor Philip Lowe is up for a testimony before the Senate Economics Legislation Committee and will need to justify the latest hawkish monetary policy actions to push back the AUD/USD bears. Following that, US Retail Sales for January, expected 1.8% versus -1.1% prior, will be closely watched for clear directions.

Technical analysis

Although the 21-DMA hurdle surrounding 0.7010 restricts the AUD/USD pair’s immediate upside, recently improving RSI (14) and sustained trading beyond the 50-DMA, around 0.6885  at the latest, seem to keep the Aussie pair buyers hopeful.