AUD/USD retreats towards 0.6700 ahead of Australia Employment data

• AUD/USD fades the previous day’s recovery moves after a volatile day.
• US dollar gained on multi-year high inflation data before Wall Street gains saved Aussie.
• Yield curve inverted sharply and propeled recession fears, keeping bears hopeful.
• Aussie data for June hints at softer Employment Change, Unemployment Rate.

AUD/USD fails to extend the corrective bounce off the two-year low as it takes offers to renew the intraday low around 0.6745 during Thursday’s initial Asian session. In doing so, the Aussie pair portrays the market’s fears of recession, as well as the Fed’s aggression, ahead of the key Australia employment data for June.

Having seen a four-decade high US inflation, markets were bombarded with calls for higher rates and the yield curve spread recession fears by widening further. However, mixed reactions from the US politicians appeared to have helped the AUD/USD recover some of the losses before recalling the bears.

That said, US Consumer Price Index (CPI) for June jumped to the highest level in 40 years to 9.1% YoY versus 8.8% expected and 8.6% prior. The Core CPI, which excludes volatile food and energy prices, eased to 5.9% from 6% prior but crossed analysts' forecast of 5.8%.

Following the data, White House (WH) Economic Adviser Brian Deese told CNBC that the CPI data shows the urgency for Congress to pass legislation to spur semiconductor manufacturing in the US, as reported by Reuters. On the other hand, US President Joe Biden mentioned that CPI data is ‘out of data’ as gas prices have fallen.

Recently, Richmond Federal Reserve President Thomas Barkin conveyed his support for higher rates in the last meeting. On the same line, Cleveland Federal Reserve President Loretta Mester also said, “The data on CPI does not suggest a rate hike in July any smaller than that in June.”

That said, the Wall Street benchmarks closed negative despite paring most losses while the US 10-year Treasury yields fell four basis points (bps) to 2.93%. It’s worth noting that the US 2-year Treasury yields rose 3.5% on a day to reach the 3.15% level and widened the inversion with the 10-year mark, which in turn hints at recession.

Moving on, Australia’s Consumer Inflation Expectations for July will precede the June month employment report to direct short-term AUD/USD moves. Forecasts suggest an easing in the headline Employment Change figure to 25L versus 60.6K prior whereas Unemployment Rate is expected to ease to 3.8% versus 3.9% previous readings.

Also read: Australian Employment Preview: Could it save the aussie?

Technical analysis

Unless crossing the monthly resistance line, around 0.6870, AUD/USD stays on the bear’s radar. However, a downward sloping trend line from late January, at 0.6738 by the press time, followed by the latest low near 0.6710, could limit the short-term downside of the pair. It’s worth noting that RSI holds lower grounds while MACD teases bull cross.