AUD/USD rallies 1% to recapture 0.7000 as USD sags ahead of US inflation

• AUD/USD capitalizes on the risk-on flows and broad US dollar retreat.
• The aussie tracks the over 1% surge in the S&P 500 futures
• Focus shifts to the US inflation for fresh hints on the Fed’s next policy move.

AUD/USD is trading above 0.7000, staging an impressive recovery from 22-month lows of 0.6911 reached on Tuesday.

In doing so, the aussie is rallying as much as 1% on the day, snapping a four-day losing streak.

The return of risk appetite in the markets combined with the US dollar pullback is boding well for aussie bulls. The better market mood, reflective of the over 1% rise in the S&P 500 futures, is collaborating with the American dollar retreat while aiding the high-beta Australian dollar.

Investors seem to be taking profits on their dollar longs ahead of the critical US inflation data release, which is expected to show inflation peaking in the world’s largest economy. Hot US consumer inflation could prompt the Fed to maintain its outlook on the interest rates.

On the other side, upbeat Chinese inflation is underpinning the sentiment around the aussie, although the data failed to move the needle on the AUD in an immediate reaction. China's April CPI came in at +2.1% YoY vs. prior 1.5%, beating expectations of 1.8%.

The broad market sentiment will continue influencing the aussie ahead of the US inflation release. US President Joe Biden’s speech will be also closely followed.

AUD/USD: Technical levels to consider