AUD/USD clings to 0.7100 after reversing Fed-led rally on inflation woes, RBA MPS, NFP eyed

• AUD/USD remains sidelined around pre-Fed levels after the recent two-day zero-sum game.
• BOE-inspired inflation, growth fears join headlines from China, EU to reverse post-Fed gains.
• Equities slumped, yields rallied and the US dollar regained its charm during the risk-off US session.
• RBA Monetary Policy Statement, US jobs report will be important for immediate directions.

AUD/USD treads water around 0.7110, after losing nearly 150 pips the previous day, as traders await the key catalysts while taking a breather following the heavily volatile sessions. That said, the Aussie pair’s latest inaction could also be linked to the cautious mode ahead of full markets as Japan finally returns to trading, following China’s trading restart on Thursday, after a long break.

The Aussie pair witnessed a notable downside, reversing all the gains made during the post FOMC trading session, as global markets turned risk-off amid skyrocketing fears of growth and inflation.

The early Thursday’s optimism in the market couldn’t withstand the Bank of England’s (BOE) forecasts suggesting doubt-digit inflation and economic recession that rocked the boat in the US as well.

Not only the BOE but worsening covid conditions in China and the European Union’s (EU) readiness for more sanctions on Russia also weighed on the market sentiment and drowned the risk barometer AUD/USD pair. Additionally, the US Securities and Exchange Commission (SEC) added over 80 Chinese firms to the list of companies facing probable delisting from the US exchanges, which portrayed fresh Sino-American tussles and weighed on the risk appetite as well.

Following this, Wall Street indices slumped more than 3.0% each while the US 10-year Treasury yields rallied 3.40% on a daily closing while rising to the fresh high in late 2018 beyond 3.00%. As a result, the US Dollar Index (DXY) also regained its strength and poked April’s multi-month high around 104.00.

Looking forward, the Reserve Bank of Australia’s (RBA) justification of the larger-than-expected rate hike, via the Monetary Policy Statement (MPS), will be crucial for the AUD/USD traders, especially after the latest inflation and growth fears, which in turn could favor sellers if perceived negative. Also important will be the monthly employment report from the US as the Fed’s 50 bps rate hike hoped no major challenges from the jobs and inflation front.

Read: Nonfarm Payrolls Preview: Could employment become a new headache for the Fed?

Technical analysis

AUD/USD pair’s pullback from 100-DMA, around 0.7265 by the press time, eyes to retest the weekly bottom near 0.7030. Also acting as an upside filter is the confluence of a downward sloping trend line from early April and the 200-DMA, near 0.7285.