AUD/USD struggles to keep recovery beyond 0.7200, US ADP, FOMC Minutes eyed

• AUD/USD grinds higher after positing the biggest daily gains in two weeks, also bouncing off fortnight low.
• Virus infections increase but WHO finds another evidence of less severity, gold prices, Aussie PMIs helped bulls to take chance.
• US ISM Manufacturing PMI, JOLTS Job Openings came in softer, inflation expectations eased too.
• US ADP Employment Change, FOMC Minutes will be the key.

AUD/USD retreats towards 0.7200, around 0.7235 by the early Wednesday morning in Asia while fading the previous day’s corrective pullback. The Aussie pair cheered cautious optimism in the markets, as well as upbeat data at home and softer US figures to consolidate Monday’s heavy losses.

Among the positives were the comments from World Health Organization (WHO) official that again tried to placate fears over the South African covid variant, Omicron. "We are seeing more and more studies pointing out that Omicron is infecting the upper part of the body. Unlike other ones, the lungs who would be causing severe pneumonia," WHO Incident Manager Abdi Mahamud told Geneva-based journalists per Reuters.

On the same line was the zero infections in West Australia for the first time in nearly a week. However, Aussie national count refreshed record top infection with close to 53,000 cases a day.

It’s worth noting that a jump in the global vaccinations also keeps policymakers hopeful of overcoming the pandemic, which in turn favored the riskier assets like gold, equities and AUD/USD.

That said, gold rose 0.74% to $1,814 while Wall Street benchmarks also tried to remain positive even as Nasdaq dropped 1.3% and S&P 500 stepped back from record top. Further, the US 10-year Treasury yields refreshed a six-week high before easing to 1.65% by the end of Tuesday’s North American session.

Talking about data, Australia’s Commonwealth Bank Manufacturing PMI surged to 57.7 in December versus the earlier forecast of 57.4. For the US, the ISM Manufacturing PMI dropped to the lowest in 11 months in December, 58.7 versus 60.0 forecast and 61.1 prior, whereas November’s JOLTS Jobs Openings came in lower than the upwardly revised previous reading of 11.091M to 10.562M.

Also, the US inflation expectations, as per 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED) eased from a six-week high to 2.57% at the latest, which in turn tamed Fed rate-hike chatters and helped AUD/USD to rebound. Additionally probing the Fed hawks were comments from Minneapolis Fed President and 2022 voting FOMC member Neil Kashkari, who said on Monday that he now sees two rate hikes in 2022, versus the money market bets of three rate lifts.

Alternatively, cautious sentiment ahead of this week’s key data docket from the US and steadily rising covid cases join the news of a new virus variant that spreads faster than Omicron challenging the market sentiment and AUD/USD prices.

For the day, AUD/USD traders should pay attention to the risk catalysts ahead of the US ADP Employment Change for December and Federal Open Market Committee (FOMC) Meeting Minutes. While the anticipated easing in the ADP may help the Aussie pair to keep the latest rebound, the hawkish tone of the policymakers in the FOMC Minutes will be enough to keep the quote weak.

Read: US ADP December Preview: Suddenly its inflation, not jobs

Technical analysis

The AUD/USD pair’s failure to keep the bounce off 100-SMA joins bearish MACD signals and RSI retreat to favor sellers. However, confirmation of the monthly rising wedge and a downside break of 200-SMA becomes necessary for the bears to take an entry, which in turn highlights the 0.7170 level as the key support.

Alternatively, further advances may aim for 0.7250 but a six-week-old horizontal area restricts short-term upside around 0.7280. Adding to the upside filter is the stated wedge’s upper line near 0.7285.