AUD/USD dribbles around mid-0.6700s as recession fears return, US inflation eyed

• AUD/USD fades bounce off 26-month low as traders brace for the key data.
• IMF projections, China’s covid woes add strength to the risk-off mood.
• Fears of economic slowdown, central bank aggression stay in the driver’s seat.
• Second-tier data from Australia and China can entertain traders, US CPI for June will be crucial.

AUD/USD portrays the market’s anxiety ahead of the key data/events as it retreats to 0.6750 during Wednesday’s initial Asian session. In doing so, the risk-barometer pair justifies the cautious mood ahead of the US Consumer Price Index (CPI) for June while reversing the previous day’s corrective pullback from a two-year low.

The Aussie pair cheered the upbeat White House (WH) statement to bounce off the multi-day low amid cautious optimism. On the same line were downbeat US second-tier data and the market’s preparations for today’s US inflation figures.

“The US economic data, including the June jobs report, are not consistent with a recession in the first or second quarters,” the White House said in a memo released on Tuesday, as reported by Reuters. The news contributed to the market’s profit booking moves ahead of the key data/events.

Talking about the data, a slump in the US NFIB Business Optimism Index for June, to the lowest since early 2013, should have also helped the AUD/USD buyers. It should be noted that National Australia Bank’s (NAB) Business Conditions and Business Confidence figures for June earlier weighed on the pair. That said, the Business Conditions rose to 13, versus 9 expected and prior 16, whereas the Business Confidence dropped to 1 from 8 expected and 6 previous.

Alternatively, the latest economic projections from the International Monetary Fund (IMF) appear to have renewed fears of a slowdown and renewed the risk-aversion wave. IMF cuts US 2022 GDP growth projection to 2.3% from 2.9% in late June, due to revised US data. “The Fund included the new forecasts in the full report of its annual assessment of the U.S. economy, which highlighted the challenges of high inflation and the steep Federal Reserve interest rate hikes needed to control prices,” said Reuters.

On the same line were covid fears from China as virus variant spreads in Shanghai and announced lockdown in Wugang city of Henan Province.

With this backdrop, Wall Street benchmarks closed in the red, despite the intermediate recovery, while the US 10-year Treasury yields printed the second day of the downside at around 2.97%. Further, the S&P 500 Futures begin Wednesday’s moves under pressure.

Looking forward, Australia’s Westpac Consumer Confidence for June, prior -4.5%, will precede HIA New Home Sales for June, prior -5.5%, to entertain AUD/USD traders. However, major attention will be given to the US CPI,  expected to rise to 8.8% YoY from 8.6%. It's worth noting that China trade numbers for June may also offer intermediate entertainment to the pair traders.

Also read: US June CPI Preview: Dollar rally could lose steam on soft inflation data

Technical analysis

AUD/USD pair’s corrective pullback from the monthly support line, around 0.6700 by the press time, needs validation from a downward sloping trend line resistance from June 16, close to 0.6875 at the latest.