AUD/USD bulls take a breather around 0.6750 as downbeat China data joins holiday mood

• AUD/USD retreats from intraday high but stays positive for the second consecutive day.
• China Industrial Profits drop 3.6% during January-November period, easing Covid restrictions keep sentiment positive.
• Mixed US data weighs on hawkish Fed bets, US Dollar during holiday-thinned markets.

AUD/USD pares intraday gains around 0.6750 during Tuesday’s sluggish morning in Europe. In doing so, the Aussie pair takes clues from the recently flashed downbeat China data. However, cautious optimism in the market joins the receding hawkish bias from the Federal Reserve (Fed) to keep the pair buyers hopeful.

China’s Industrial Profits dropped 3.6% during the January-November period versus -3.0% prior.

It’s worth noting, however, that the People’s Bank of China’s (PBOC) heavy liquidity injections keep the market sentiment firmer despite the downbeat data. That said, the Chinese central bank injected the most funds in two months during the last week.

On a broader front, China scrapped the COVID quarantine rule for inbound travelers starting from January 08. The nation’s National Health Commission also mentioned “China's management of COVID-19 will also be downgraded to the less strict Category B from the current top-level Category A.”

The news joined geopolitical fears emanating from Russia and North Korea to portray cautious optimism in the market. As a result, S&P 500 Futures rise 0.60% intraday to 3,892 whereas the US 10-year Treasury yields remain sluggish at around 3.74% by the press time.

Other than the risk-positive catalysts from China, softer US data also helps AUD/USD to remain on the buyer’s radar. US Core Personal Consumption Expenditures (PCE) Price Index, mostly known as the Fed’s favorite inflation gauge, matched 4.7% YoY forecasts for November versus 5.0% prior. Further, the Durable Goods Orders for the said month marked a contraction of 2.1% compared to -0.6% expected and 0.7% previous readings. More importantly, the Nondefense Capital Goods Orders ex Aircraft marked improvement of 0.2% compared to 0.0% expected and 0.3% revised down prior. Additionally, the Federal Reserve (Fed) Bank of Atlanta’s GDPNow tracker rose to show +3.7% annualized growth for the fourth quarter (Q4) versus +2.7% previous estimates.

Alternatively, geopolitical fears emanating from Russia and North Korea challenge the Aussie pair buyers amid the year-end inaction in the markets.

Amid these plays, S&P 500 Futures rise 0.75% intraday to 3,898 whereas the US 10-year Treasury yields retreat to 3.73% at the latest.

Given the market’s consolidation of intraday gains and the lack of major data/events ahead of Friday’s China PMIs, the pair traders should look for the qualitative catalyst for clear directions.

Technical analysis

Although the 100-DMA restricts short-term AUD/USD downside near 0.6650, a daily closing beyond the 21-DMA hurdle surrounding 0.6740 becomes necessary for the bulls to keep the reins.