AUD/USD remains below 0.6700/200-day SMA, moves little after Chinese inflation data

• AUD/USD remains below the 200-day SMA through the Asian session on Monday.
• The emergence of some USD buying turns out to be a key factor capping the pair.
• China’s economic woes also contribute to keeping a lid on the China-proxy Aussie.

The AUD/USD pair struggles to capitalize on Friday's strong positive move and remains below the 0.6700 mark, or a technically significant 200-day Simple Moving Average (SMA) through the Asian session on Monday.

The prospects for further policy tightening by the Federal Reserve (Fed) later this month remain supportive of elevated US Treasury bond yields and assist the US Dollar (USD) to attract some buyers on the first day of a new week. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, recovers a part of Friday's heavy losses to a fresh monthly low and turns out to be a key factor acting as a headwind for the AUD/USD pair.

That said, reduced bets for any further interest rate hike by the Fed after the one expected in July might hold back traders from positioning for any meaningful upside for the USD. Investors seem convinced that the US central bank will soften its hawkish stance sooner rather than later and the expectations were fueled by the rather unimpressive US jobs report on Friday, which showed that the economy added the fewest jobs in 2-1/2 years in June.

The aforementioned fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the upside, though China’s economic woes continue to act as a headwind for the China-proxy Aussie. The worries were fueled by softer Chinese inflation figures, which showed that the headline CPI fell 0.2% in June and the yearly rate remained flat. Moreover, the Producer Price Index (PPI) fell by the 5.4% YoY rate during the reported month.

In the absence of any relevant market-moving economic releases from the US, traders on Monday will take cues from a speech by Fed Governor Michael Barr. This, along with the US bond yields, might influence the USD and provide some impetus to the AUD/USD pair. The focus, however, remains glued to this week's release of the latest US consumer inflation figures, due on Wednesday, which will play a key role in driving the USD demand in the near term.

Technical levels to watch