AUD/USD needs to reclaim 0.6900 to avoid further downside ahead of US Inflation

• AUD/USD is looking to claim 0.6900 ahead of the Australian CPI and Retail Sales data.
• Market sentiment seems confusing as S&P500 remains solid while risk-perceived currencies witness correction.
• A decent increment in US Treasury yields has weighed down risk-sensitive currencies.

The AUD/USD pair is struggling to recapture the immediate resistance of 0.6900 in the early Asian session after a gradual decline from 0.6950. The Aussie asset is expected to hog the limelight on Wednesday as the Australian Bureau of Statistics will report the monthly Consumer Price Index (CPI) data and monthly Retail Sales.

S&P500 continued its upside momentum on Tuesday, portraying that the risk profile is highly positive. The US Dollar Index (DXY) has continued to hover below 103.00, which indicates that investors are awaiting the release of the United States inflation data for fresh impetus. It seems that risk-perceived currencies have been impacted by a sheer gain in return derived from US Treasury bonds. The 10-year US Treasury yields climbed to near 3.61%.

As per the consensus, the monthly Australian CPI (Nov) is seen higher at 7.3% vs. the former release of 6.9%. Also, Retail Sales are seen higher at 0.6% against a contraction of 0.2% released earlier. Both catalysts are expected to compel the Reserve Bank of Australia (RBA) to continue hiking interest rates further to tame soaring inflation.

On the United States front, Thursday’s inflation data will remain in the spotlight. The headline CPI (Dec) is expected to continue its declining spree and may drop to 6.5% from the former figure of 7.1%. While the core CPI that excludes oil and food prices might slip to 5.7% from 6.0% reported earlier. A similar kind of outcome is going to delight the Federal Reserve (Fed) ahead.

Meanwhile, hawkish commentary from Fed Governor Michelle Bowman failed to infuse strength into the US Dollar. Reuters reported that Bowman said she expects the rate-setting Federal Open Market Committee "will continue raising interest rates to tighten monetary policy, as we stated after our December meeting," while noting the pace of future actions will be driven by how the economy performs.