AUD/USD bears eye sub-0.7000 zone on strong USD ahead of US PCE Inflation

• AUD/USD braces for the biggest weekly fall since August, recently stabilizing near two-month low.
• Markets tried to digest hawkish Fed signals, yields eased but couldn’t help equities, gold.
• US Q4 Advance GDP, Jobless Claims came in stronger to fuel USD, Durable Goods Orders couldn’t harm the buck
• Aussie PPI, risk catalysts to entertain traders with eyes on US Core PCE Inflation.

AUD/USD stays on the way to post the biggest weekly loss in five months, taking rounds to 0.7030-35 during early Friday morning in Asia.

The Aussie pair dropped to December 2021 bottom following the heaviest daily fall in a month the previous day as the US dollar cheered the hawkish Fed verdict. The upside momentum gained support from a slump in gold prices while ignoring mixed equities and a pullback in the US Treasury yields.

Global traders matched expectations of favoring the US dollar against almost everything after the Federal Reserve (Fed) indirectly confirmed the March rate hike and cited room for more lift-offs.

The hawkish expectations gained support from the Advance Q4 US GDP, up 6.9% annualized versus 5.5% market consensus and 2.3% prior. On the same line was the US Initial Jobless Claims for the week ended in January 21that came in 206K compared to 260K expected and 290K previous. It should be noted, however, that the US Durable Goods Orders for December dropped by -0.9% for December, below -0.5% market consensus.

Elsewhere, China's slowest industrial profit growth in nine months and softer Westpac Leading Index for Australia also weighed on the AUD/USD prices. On the same line were softer-than-previous readings of the Aussie Export Price Index and Import Price Index for Q4.

Other than the data and Fed, escalating geopolitical fears concerning the Russia-Ukraine issue also drown the risk barometer AUD/USD prices. Recently, US President Joe Biden told Ukrainian President Volodymyr Oleksandrovych Zelenskyy that a Russian invasion is now highly certain, per CNN. Also backing the risk-off mood was news from China’s Evergrande as the struggled real-estate firm said it is targeting a restructuring proposal within six months. 

Amid these plays, equities reversed initial gains and closed with losses while the US 10-year Treasury yields ended Thursday’s North American trading session with four basis points (bps) of a downside to 1.80%. Further, gold prices slumped over 1.0% to below $1,800 whereas the US Dollar Index (DXY) rose to the highest levels last seen during July 2020.

Looking forward, Australia’s Q4 Producer Price Index, expected 0.3% QoQ versus 1.1% prior, will decorate the calendar in Asia but major attention will be given to the US Core PCE Price Index figures for December as they’re considered the Fed’s preferred version of inflation. Markets expect a 4.8% YoY figure versus 4.7% prior.

Read: US PCE Inflation Preview: Dollar rally has more legs to run

Technical analysis

A clear downside break of a horizontal area from August, surrounding 0.7100, directs AUD/USD towards 2021 bottom of 0.6993. However, any further weakness will not hesitate to challenge the 61.8% Fibonacci Expansion (FE) of the pair’s declines from late June 2021 to January 2022, around 0.6920.