AUD/USD portrays anxiety ahead of Aussie budget, US inflation around mid-0.6700s

• AUD/USD seesaws near the highest levels in 12 days, prods six-day uptrend.
• Hopes from Aussie budget, hawkish RBA bias favor pair buyers.
• Challenges to sentiment, recent shift in Fed bets prod AUD/USD upside amid light calendar.
• US CPI for April, survey on bank conditions and Aussie budget will be crucial to watch for clear directions.

AUD/USD remains sidelined near 0.6750, recently easing from the intraday high, as bulls and bears stay on their toes ahead of the key data/events amid the early Asian session on Monday.

In doing so, the risk-barometer pair also portrays the market’s mixed feelings amid the fears emanating from the US banks and debt ceiling talks, as well as optimism surrounding Australia and the Reserve Bank of Australia’s (RBA) hawkish bias.

Market sentiment worsens of late as pressure on the US policymakers to solve the debt ceiling riddle mounts amid the likely exhaustion of funds by June. Adding to the risk-off mood can be the looming US credit rating cut by a European rating agency. However, a combination of the RBA’s hawkish surprise and the Fed’s dovish rate hike keeps the AUD/USD pair buyers hopeful.

Talking about the positives, Australia's centre-left Labor government said on Monday it would include A$14.6 billion ($9.84 billion) over four years in the federal budget for cost of living relief for families and businesses, which it promised would not stoke inflation, reported Reuters.

On the same line, RBA’s quarterly Statement on Monetary Policy (SoMP), also known as the Monetary Policy Statement (MPS), showed readiness for further rate hikes and defended hawks after surprising markets with a 0.25% rate lift earlier in the week.

Alternatively, US Treasury Secretary Janet Yellen on Sunday issued a stark warning that a failure by Congress to act on the debt ceiling could trigger a "constitutional crisis" that also would call into question the federal government's creditworthiness, per Reuters.

Further, the US employment report for April surprised markets by unveiling a jump in the headline Nonfarm Payrolls (NFP) by 253K expected and revised down prior readings of 165K. Further, the Unemployment Rate also eased to 3.4% versus 3.5% market forecasts and previous mark whereas Average Hourly Earnings improved to 4.4% YoY from 4.3% prior (revised) and analysts’ estimations of 4.2%.

Following the upbeat US employment report, St. Louis Federal Reserve President James Bullard, who supported the 25 basis point rate hike that the Fed took last week, called it "a good next step." The policymaker cited significant amount of inflation in the economy and "very tight" labor market to back his hawkish bias.

Additionally, a leading European rating agency, Scope Ratings, placed the United States of America's AA long-term issuer and senior unsecured debt ratings in local and foreign currency under review for a possible downgrade due to longer-run risks associated with the misuse of the debt ceiling instrument, per Reuters.

Against this backdrop, S&P 500 Futures print mild losses while the US Treasury bond yields also remain pressured, which in turn allows the US Dollar to lick its wounds.

Looking forward, Tuesday’s Federal Budget from Australia will be crucial for the AUD/USD pair traders ahead of the US Consumer Price Index (CPI) for April. Also important to watch will be the US Senior Loan Officer Opinion Survey on Bank Lending Practices. It’s worth noting that Tuesday’s Aussie Retail Sales and China trade numbers can also offer additional directives to the pair traders.

Technical analysis

Despite the latest inaction, AUD/USD defends the previous day’s upside break of a three-month-old descending trend line, now immediate support near 0.6725, which in turn keeps the pair buyers hopeful of challenging the previous monthly high of around 0.6805.