AUD/USD struggles to praise China inflation data above 0.6300, US Retail Sales eyed

• AUD/USD retreats from intraday top but keeps recovery from 30-month low.
• China CPI came in firmer to 2.8% but PPI eased in September.
• Comments from PBOC’s Yi strengthen rebound but covid woes, Fitch’s outlook for Australia weigh on prices.
• US data, risk catalysts could offer a volatile day ahead.

AUD/USD adds strength to the previous day’s bounce off a 2.5-year low even as China’s inflation data for September eased, published during Friday’s Asian session. Even so, the Aussie pair remains bearish for the fifth consecutive week amid the latest divergence between the monetary policy signals from the Reserve Bank of Australia (RBA) and the US Federal Reserve. Also challenging the Aussie pair buyers are the fresh covid fears from China.

That said, China’s headline Consumer Price Index (CPI) matched upbeat market forecasts by rising 2.8% in September while the Producer Price Index (PPI) fell short of meeting expectations during the stated month, down to 0.9% versus 1.0% forecasts and 2.3% prior.

Earlier in the day, People’s Bank of China (PBOC) Governor Yi Gang mentioned that the inflation rate in China is well within target.

It should, however, be noted that the latest coronavirus wave in Hong Kong, Shanghai and Beijing joins the broad push for higher rates to challenge the optimism in China, which in turn weighs on the AUD/USD prices due to Australia’s trade ties with the dragon nation.

Additionally, global rating giant Fitch also raised concerns over the Aussie economy and challenged the AUD/USD bulls. “Rising labor costs, ongoing workforce shortages, high inflation and rising interest rates are dampening corporate issuer expectations around the strength of Australia’s post Covid-19 pandemic recovery,” stated Fitch in its latest update.

Elsewhere, the US dollar remains dicey as yields retreat and the market sentiment improves amid hopes of more stimulus from China and the UK. While portraying the mood, the US 10-year Treasury yields drop back to 3.91% while the S&P 500 Futures print mild gains at the latest.

Looking forward, risk catalysts will be more important to watch for fresh clues ahead of the key US Retail Sales for September, expected 0.2% MoM versus 0.3% prior. Also important will be the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October.

Also read: US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

Technical analysis

AUD/USD recovery remains elusive unless crossing the resistance line of a six-week-old bearish channel, around 0.6410 by the press time.