AUD/USD consolidates gains above 0.7500 ahead of Aussie Retail Sales

• AUD/USD prints mild losses after refreshing three-month high.
• Market sentiment worsens amid an absence of US stimulus deal.
• Softer US GDP, ECB announcements dragged down USD despite firmer Treasury yields.
• Australia Q3 PPI, Retail Sales for September can direct immediate moves ahead of US Core PCE Inflation data.

AUD/USD struggles to extend the four-day uptrend around the highest levels since July, down 0.11% intraday around 0.7535 during Friday’s initial Asian session. In doing so, the quote portrays a cautious mood in the market ahead of the key Aussie and the US data.

In addition to the cautious mood ahead of Australia’s third-quarter (Q3) Producer Price Index (PPI) and September’s Retail Sales, an absence of a deal on the US President Joe Biden’s $1.75 trillion stimulus package also weigh on the market sentiment and the AUD/USD prices. On Thursday, US Democrats discussed details of President Biden’s infrastructure plan but some on the floor reject voting on the package unless getting final blueprints, delaying the vote to the next week.

Elsewhere, fresh chatters over inflation and firmer monetary policies also sour the sentiment. Although the US Q3 GDP’s weakness hints at the Fed’s slower rush towards monetary policy tightening, inflation expectations remain near a multi-year high in the US and Eurozone, which in turn joins the covid-led supply crunch to push policymakers towards tightening. Hence, the fears of the Fed calling an end to the easy money loom and challenge AUD/USD prices.

During the previous day, the US Dollar Index (DXY) dropped the most since October 13  after the US Q3 GDP US Q3 GDP slipped below 2.7% forecast to 2.0%, much lower than 6.7% prior. Also, the European Central Bank’s (ECB) hint to start tapering the monthly bond purchases and the PEPP (that’s the pandemic emergency purchase program) will end next March propelled the Euro and weighed down the USD. The regional central bank left monetary policy unchanged, as expected, with refinancing rate at 0.0% and deposit rates at -0.5%.

Amid these plays, the S&P 500 Futures print mild losses after the Wall Street benchmark closed positive, exerting additional downside pressure on the AUD/USD prices.

Given the anticipated QoQ weakness in the PPI, from 0.7% to 0.3%, contrasting the strong YoY expectations of 3.2% versus 2.2% prior, the Reserve Bank of Australia (RBA) may not gain much information about the factory gate inflation. Hence, the data may offer little direction to the AUD/USD prices. However, an anticipated jump in the Aussie Retail Sales, from -1.7% to +0.2% for September may hint at a further tightening of the monetary policy and rate hikes after the early week’s firmer inflation numbers, which in turn could help the quote poke July’s high of 0.7599 on positive release.

Following the Aussie data, Fed's preferred inflation gauge, namely Core Personal Consumption Expenditures (PCE) - Price Index for September will be in focus.

Read: Personal Consumption Expenditure Price Index September Preview: Transitory inflation becomes permanent

Technical analysis

AUD/USD grinds higher around July top amid sluggish Momentum line. However, the Aussie pair confirmed the bullish pennant and hence kept the buyers hopeful of revisiting the June high surrounding 0.7775 on the previous day’s sustained break of 0.7535. However, tops marked during late June around 0.7620 may offer an intermediate halt during the rally.

In a case where the bears sneak in, a downside break of the pennant’s support line, at 0.7485 by the press time, a convergence of the 100-SMA and monthly support line near 0.7420 will be eyed for further weakness.