AUD/USD fades corrective bounce near 0.6550 as China inflation flags mixed signals

• AUD/USD defends corrective bounce off two-month low after China data turns down deflation woes.
• China CPI slumps to -0.3% YoY, PPI improves to -4.4% YoY for July.
• Biden Administration’s relief to China AI companies, market’s consolidation after heavy risk aversion also favor Aussie buyers.
• Risk catalysts eyed ahead of Thursday’s Australia Consumer Inflation Expectations, US CPI.

AUD/USD remains sidelined near the intraday high surrounding 0.6550 as China inflation data flashes mixed signals during early Wednesday. In doing so, the Aussie pair defends the late Tuesday’s corrective bounce off the lowest levels in two months as the market stabilizes after a volatile day.

China’s headline inflation gauge, namely the Consumer Price Index (CPI), declines to -0.3% YoY versus -0.4% YoY expected and 0.0% prior whereas the Producer Price Index (PPI) improves to -4.4% YoY compared to -4.1% YoY market forecasts and -5.4% previous readings.

Apart from the China inflation data, the latest risk-positive news from the Biden Administration, cited by Bloomberg, also allows the AUD/USD pair to lick its wounds at the multi-day low. “The US plans to target only those Chinese companies that get more than 50% of revenue from the sectors including quantum computing and artificial intelligence (AI),” said the news.

Elsewhere, the market’s consolidation after a heavy risk aversion might have also allowed the AUD/USD to remain sidelined.

Even so, the looming bankruptcies of the top-tier China real estate players and hardships for global banks, due to the latest move from Italy and the leading rating agencies, seem to keep a tab on the AUD/USD price.

Against this backdrop, Wall Street closed in the red with major losses among the bank stocks whereas the US 10-year Treasury bond yields dropped to the weekly low of around 3.98% before bouncing off 4.03% by the day’s end. That said, S&P500 Futures remains mildly bid by the press time.

Looking ahead, a lack of major data/events may allow the AUD/USD pair to consolidate the weekly loss before Thursday’s Australia Consumer Inflation Expectations for August and the all-important US CPI.

Technical analysis

The nearly oversold RSI (14) conditions test the AUD/USD bears despite breaking a 10-month-old rising trend line, now immediate resistance near 0.6550. However, an ascending support line stretched from early November, around 0.6480, challenges the quote’s further declines.