AUD/USD stays defensive near 0.6950, Aussie Consumer Inflation Expectations eyed

• AUD/USD dribbles around yearly low after more than 100-pip move.
• Risk appetite remains divided, mostly sour, as equities/yields initially gained before closing negative.
• Firmer US inflation, mixed Fedspeak and headlines from China keep traders confused even as bears hold the reins.
• Australia’s Consumer Inflation Expectations for May will be observed closely after RBA’s surprise rate hike.

AUD/USD traders take a breather around 0.6940, following a whippy move of near 120 pips surrounding the US inflation release, as markets wait for fresh clues during the initial Asian session on Thursday. That said, Australia’s Consumer Inflation Expectations for May appear an immediate catalyst to watch for the pair traders, in addition to the widely chatters news over China, Russia and inflation.

The Aussie pair rallied 120 pips before reversing from 0.7050 to just end Wednesday with a “no-change day” sign, suggesting the traders’ indecision despite the firmer US inflation data. That said, the headline Consumer Price Index (CPI) rose to 8.3% YoY versus 8.1% expected and 8.5% prior. More importantly, the CPI ex Food & Energy, better known as Core CPI, crossed 6.0% forecasts with 6.2% annual figures, versus 6.5% previous readouts.

Following the data, Fedspeak turned out to be mixed as the previously hawkish Federal Reserve Bank of St. Louis James Bullard mentioned that he ''won't emphasize single inflation report too much but inflation is more persistent than many have thought.'' However, Cleveland Fed President and FOMC member Loretta Mester previously recalled the bears as she said, “They don't rule out a 75 basis points rate hike forever”.

Not only the Fed but multiple policymakers from the European Central Bank (ECB) also sounded hawkish and renewed rate-hike, as well as growth fears, which in turn weighed on the AUD/USD prices.

Also exerting downside pressure on the quote were softer prints of Australia’s Westpac Consumer Confidence, -5.6% versus -0.9%. However, firmer inflation numbers from China and news that eight districts from Shanghai witnessed zero covid spread seemed to have kept the buyers hopeful, before the US inflation woes weighed on the prices.

Amid these plays, equities initially rose before ending in the red while the US Treasury yields also rose past 3.0% before ending Wednesday at a one-week low of 2.92%. It’s worth observing that S&P 500 Futures print mild gains by the press time.

Looking forward, an expected weakness in the Aussie Consumer Inflation Expectations for May, to 4.8% from 5.2% prior, could add strength to the AUD/USD pair’s bearish bias as the same won’t back the Reserve Bank of Australia’s (RBA) 50 basis points (bps) rate hike and hints at softer move ahead.

Technical analysis

A three-week-old descending trend channel restricts short-term AUD/USD moves between 0.6870 and 0.7170. That said, a horizontal area comprising lows marked during late 2021 and early 2022, around 0.6990-7000, appears a nearby hurdle to cross for the pair buyers.