AUD/USD buyers await China’s return below 0.7100

• AUD/USD holds lower ground as bears take a breather after Friday’s heavy sell-off.
• Buyers had to forgo half of weekly gains after strong US NFP.
• Sellers also watch risks concerning Russia-Ukraine war, RBA’s failures to accept hawkish scenarios.
• China’s return, Caixin Services PMI for January will be important for short-term direction.

AUD/USD retreats from an intraday high near 0.7085 during the inactive early Asian session on Monday. The Aussie pair snapped a two-week downtrend by the end of Friday, despite cutting the weekly gains in half due to the US jobs report for January.

That said, the US Bureau of Labor Statistics (BLS) offered a positive surprise to the US dollar bulls with January’s employment report. The headline Nonfarm Payrolls (NFP) rose by 467K versus the median forecast for a 150K rise and 510K revised prior while the Unemployment Rate rose to 4.0% from 3.9% in December, compared to expectations for a no-change figure. It’s worth noting, however, that the U6 Underemployment Rate extended the south-run to 7.1% from 7.3% previous readouts. Also encouraging was Average Hourly Earnings that jumped strongly to 5.7% versus 4.9%. 

Additionally, hawkish comments from Fed policymakers and Russia-linked fears also exert downside pressure on the risk-barometer pair. Recently, US national security adviser said that the Russian invasion of Ukraine could be any day now.

Contrary to the Fed, policymakers at the Reserve Bank of Australia (RBA) tried to defend the easy money policy. “The RBA doesn’t expect growth in the Wage Price Index to reach 3% until mid-2023. It is a bit more optimistic on average wages growth, though, with this forecast to reach 4% by mid-2023. We think the RBA’s wages outlook is too pessimistic which lies behind our expectation that the RBA will begin raising the cash rate in the second half of 2022,” said ANZ analysts.

Against this backdrop, the US Dollar Index (DXY) dropped the most since early November 2021 before snapping a five-day downturn to bounce off a three-week low the previous day. Further, the US 10-year Treasury yields rallied to the fresh high since January 2020, with the latest addition being 8.9 basis points (bps) to 1.916%. It should be noted, however, that equities were surprisingly mixed.

Looking forward, second-tier data at home may entertain traders but major attention will be given to China’s returns after a one-week-long holiday, as well as China Caixin Services PMI for January, expected 52.9 versus 53.1 prior. The dragon nation missed the recently hawkish plays, which can push policymakers at the People’s Bank of China (PBOC) towards impressive steps to defend the yen and the same may help the AUD/USD prices to rebound. Though, any failures to witness the PBOC move, as well as downbeat China data, can keep AUD/USD on the back foot.

Technical analysis

Last week’s U-turn from the 50-DMA, around 0.7165 by the press time, directs AUD/USD sellers towards 2021 bottom surrounding 0.6995 before highlighting January’s low of 0.6966.