AUD/USD slides to 0.6750 amid mixed concerns over China Covid, Aussie consumer sentiment

• AUD/USD holds lower grounds on the way to reverse the previous day’s gains.
• Market sentiment deteriorates on hopes of Covid pain, downbeat Aussie consumer index adds strength to the bearish bias.
• China’s heavy cash injections, downbeat US Treasury yields put a floor under the prices.

AUD/USD justifies its risk-barometer status while easing to 0.6765 during early Friday, after rising the most in a week the previous day.

The Aussie pair’s latest weakness could be linked to the receding optimism amid downbeat headlines surrounding China. Adding strength to the bearish bias could be the Aussie Consumer sentiment-linked updates. However, downbeat US Treasury yields and the People’s Bank of China’s (PBOC) actions seem to challenge the pair sellers of late.

Although Australia hasn’t joined the league of seven counties that announced Covid-test requirements for travelers from China, the recent chatters raise fears that the COVID-19 conditions in the dragon nation are worst than appear. While highlighting the same, the UK-based health data firm Airfinity said on Thursday that around 9,000 people in China are probably dying each day from COVID-19, double the numbers expected the previous day and higher than the official figures conveyed by China.

Elsewhere, Reuters reported that Australia's consumer index is on track to drop 7.4% in 2022, posting its worst year since 2014.

Previously, the mixed US data and easing fears of the Coronavirus, as well as hopes of overcoming the Ukrainian crisis, seemed to have weighed on the US Dollar and helped the AUD/USD pair to remain firmer.

That said, US Initial Jobless Claims rose 225K versus 216K prior for the week ended on December 24 while the Continuing Jobless Claims increased by 1.71M from 1.669M previous readout during the week ended on December 16. However, the 4-week moving average for the same dropped to 221K versus the revised down previous readings of 221.25K.

On the other hand, Italy’s rejection of fears of any new Covid variant, after finding 50% of flight passengers being infected by the virus, seemed to have helped the markets in ignoring the fears of the virus.  On the same line could be the headlines suggesting China’s discovery of a Covid antiviral pill and hopes of the CDC board to overcome the COVID-19 fears by citing the peak of virus spread in Beijing, Tianjin and Chengdu. Also, an absence of heavy losses to lives and infrastructures during Thursday’s heavy missile fire on Kyiv and Kharkiv by Moscow joined the global backup to Ukraine in suggesting a sooner end to the thorny issue and probed the pessimism.

Against this backdrop, US 10-year Treasury yields extend the previous day’s pullback from the six-week high while the S&P 500 Futures print mild losses despite Wall Street’s positive closing.

Given the shift in the market sentiment, the AUD/USD pair may witness further downside and hence highlight the aforementioned risk catalysts. Also important to watch is the US Chicago Purchasing Managers’ Index for December, likely to improve to 41.2 from 37.2 prior.

Technical analysis

A successful break of the 21-DMA, around 0.6740 by the press time, keeps the AUD/USD bulls directed towards the monthly high of 0.6893.