AUD/USD fails to sustain above 0.6900 as USD Index rebounds, US inflation eyed

• AUD/USD is struggling to shift its auction profile above 0.6900 as US Dollar Index has rebounded.
• The Australian Dollar failed to pick strength despite higher-than-anticipated Australian inflation and Retail Sales data.
• An escalation in inflation print and retail demand might force the RBA to tighten policy further.

The AUD/USD has failed to sustain above the immediate resistance of 0.6900 despite better-than-projected Australian inflation providing strength to the Australian Dollar. The Aussie asset has sensed heat as the US Dollar Index (DXY) has rebounded in its early trade. The USD Index has stretched to near the round-level resistance at 103.00

S&P500 futures have surrendered gains recorded in early Asia, portraying a decline in investors’ risk appetite. Also, 10-year US Treasury yields are facing immense pressure and have dropped below 3.60%.

In early Asia, the Australian Dollar displayed volatility after the release of the monthly Australian inflation and Retail Sales data. The Australian Bureau of Statistics reported monthly inflation at 7.4% that the consensus of 7.3% and the former release of 6.9%. Apart from that, monthly Retail Sales (Nov) have jumped to 1.4% against the projections of 0.6%.

This might result in unrest for Reserve Bank of Australia (RBA) policymakers as they are putting ‘blood and sweat’ into taming healthy inflation.

Meanwhile, market participants are continuously chattering over the reopening of China after stretched lockdown led by the Covid-19 epidemic. Economists at JP Morgan are of the view that China’s reopening from the Covid restrictions will likely boost Australian economic growth by around 1.0%. It is worth noting that Australia is a leading trading partner of China and economic prospects in China impact the Australian Dollar.

This week, the United States Consumer Price Index (CPI) will remain spotlight. As per the consensus, the headline CPI will drop to 6.5% from the former release of 7.1% while the core inflation that doesn’t inculcate food and energy prices may scale lower to 5.7% vs. the prior release of 6.0%.