AUD/USD retreats from weekly top near 0.7150 as RBA’s Lowe sounds cautious

• AUD/USD struggles to extend three-day uptrend, stays sidelined around weekly top.
• Governor Lowe repeats RBA statement saying, “End of bond purchase program does not mean a cash rate rise is imminent.”
• Market sentiment dwindles ahead of key weekly data/events, mixed Fedspeak add to sluggish moves.
• US ADP Employment Change for January will be important for nearby directions.

AUD/USD bulls take a breather around the weekly top, easing to 0.7135, on RBA Governor Philip Lowe’s cautious optimism during early Wednesday. Even so, the risk barometer stays firmer for the third consecutive day up 0.12% intraday at the latest.

In addition to reiterating the RBA statement, Governor Lowe also states, “Too early to conclude inflation is sustainably within target range.” However, the bulls remain hopeful as the policymaker mentions, “Worst of disruptive economic effects from omicron now behind us.”

Read: Reserve Bank of Australia Governor Philip Lowe: End of QE doesn't mean cash-rate rise imminent

On Tuesday, the Reserve Bank of Australia (RBA) formally announced an end to the Quantitative Easing (QE) and conveyed hopes of further recovery in inflation and GDP. Though, the Aussie central bank’s rejection of the immediate rate hike concerns and comments like, “Inflation has picked up, it is too early to conclude that it is sustainably within the target band,” initially weighed on the AUD/USD.

However, softer US Dollar Index (DXY) and upbeat performance of equities and gold seemed to have underpinned the AUD/USD pair’s recovery moves towards refreshing the weekly top.

Risk appetite improved the previous day despite mixed comments from the US Federal Reserve (Fed) officials and the recently firmer US data, not to forget indecision over the Russia-Ukraine issues. While portraying the same, the US 10-year Treasury yields snapped a two-day downtrend to regain 1.80%, recently sluggish around the same level. Though, the Wall Street benchmarks printed gains and help the S&P 500 Futures to remain firm around 4,555 at the latest.

That said, The US ISM Services PMI for January rose to 57.6 versus 57.5 expected, marking the 20^th straight expansion of the manufacturing activity, which in turn allowed the Fed to keep its hawkish bias. However, recent Fedspeak has been confusing and tests the US dollar bulls ahead of the key US jobs report for January, up for publishing on Friday.

To mention Fedspeak, Atlanta Fed President Raphael Bostic said on Tuesday that there is a "real danger" of inflation expectations drifting from the Fed's 2.0% target to 4% or higher. On the other hand, St Louis Fed President James Bullard said that he thinks it is an open question whether the Fed will have to become more restrictive (i.e. raise rates above the "neutral" 2.0%-2.5% zone). 

Having witnessed initial reaction to comments from RBA Governor Lowe, AUD/USD traders will pay attention to the risk catalysts for fresh impulse. Also important will be the US ADP Employment Change for January, expected 207K versus 807K prior.

Technical analysis

AUD/USD bulls cheer a clear upside break of a fortnight-old resistance line, now support around 0.7060, as well as crossing a three-week-old descending trend line near 0.7115, to aim for the 50-DMA resistance of 0.7165.

The pair’s further upside, however, needs validation from 200-SMA on a four-hour (4H) chart, near 0.7185, to challenge the 100-DMA key hurdle surrounding 0.7255.