AUD/USD hovers below 0.6800 as investors await China/US inflation

• AUD/USD is oscillating below 0.6800, more upside seems favored amid the risk appetite theme.
• The commentary from Janet Yellen that the US could avoid recession has supported bond yields.
• Lower inflation print could force PBOC to call for more policy easing ahead.

The AUD/USD pair is displaying back-and-forth moves below the critical hurdle of 0.6800 in the early Asian session. The Aussie asset has turned sideways as investors are awaiting the release of China’s Consumer Price Index (CPI) data. The Australian Dollar stretched its recovery firmly on Thursday after surpassing the critical resistance of 0.6740 as the risk-on impulse regained its glory.

Meanwhile, the US Dollar Index (DXY) is oscillating below the 105.00 support as investors shrugged off United States recession-inspired uncertainty that led to a decline in safe-haven’s appeal. A decent recovery in S&P500 on Thursday after a three-day weakness spell showed investors have discounted further interest rate hike by the Federal Reserve (Fed).

The 10-year US bond yields have accelerated to near 3.49% after a sell-off as commentary from US Treasury Secretary Janet Yellen trimmed recession risks. Yellen said the US can avoid recession, given that there is no wage-price spiral and supply chain bottlenecks are starting to ease, as reported by Reuters.

Going forward, investors are shifting their focus toward the United States CPI data, which will release on Tuesday. As per the consensus, the headline CPI is expected to remain steady at 7.7% while the core CPI that excludes food and oil prices could inch higher to 6.4% from the prior release of 6.3%. Recent jump in labor additions and upbeat demand in the service sector justify higher consensus for core inflation figure.

On the Australian front, the release of the China CPI will be keenly watched. As per the projections from economists at TD Securities, the annual inflation data could decline to 1.5% from the former release of 2.1%. This may force the People’s Bank of China (PBOC) to adopt an extreme dovish stance on interest rates. It is worth noting that Australia is a leading trading partner of China and the injection of liquidity into the Chinese economy will also support the Australian Dollar.