AUD/USD retreats towards 0.7450 as firmer Treasury yields underpin USD rebound

• AUD/USD consolidates recent gains near three-month high, refreshes intraday low of late.
• Aussie Westpac Leading Index recovers in September but risk-on mood fades and challenge the bulls.
• US Treasury yields refresh five-month high, S&P 500 Futures stay directionless.
• PBOC interest rate decision, risk catalysts are the key amid a light calendar day.

AUD/USD drops to 0.7464, a fresh intraday low, consolidating the previous day’s gains during Wednesday’s Asian session. In doing so, the Aussie pair steps back after rising to the fresh high since May 20.

The pullback moves could be linked to the sluggish sentiment in the market, as well as the firmer US Treasury yields, thanks to the Fed tapering concerns and mixed headlines over the coronavirus conditions from Australia. As a result, the Australian data gets fewer accolades amid a quiet session.

Fed Governor Christopher Waller reiterated his support for the rate hike while saying, per Reuters, “If inflation keeps rising at its current pace in coming months rather than subsiding as expected, Federal Reserve policymakers may need to adopt ‘a more aggressive policy response’ next year.” On the same line, Reuters’ latest poll of economists cites the risk of an earlier rate hike by spotting the reflation fears.

Talking about the data, Australia Westpac Leading Index for September improved from -0.27% MoM to -0.02%. it’s worth noting that Aussie COVID-19 infections rose from 2,047 to 2,125 per the ABC News data.

Amid these plays, the US 10-year Treasury yields rise 3.8 basis points (bps) to 1.672%, a fresh high since late May, while the US Dollar Index (DXY) keeps rebound from a three-week low, tested on Tuesday, near 93.80.

With the People’s Bank of China (PBOC) Interest Rate Decision looming, AUD/USD traders will wait for clues on how the Chinese central bank defends the local monetary system from the financial risks emanating from Evergrande and the likes. As per the latest survey from Reuters, “China is expected to keep its benchmark lending rate steady for the 18th straight month at its October fixing on Wednesday, despite growing pressure on the economy.”

Also highlighting the downside risk of the AUD/USD prices are the latest comments from Helge Berger, the IMF's China Mission Chief and Assistant Director in the IMF's Asia and Pacific Department. The diplomat cited that the Evergrande risk to China is contained for now but the nation is accumulating downside risks.

Technical analysis

AUD/USD pair’s failure to provide a daily closing beyond the four-month-old horizontal resistance line surrounding 0.7480 joins overbought RSI conditions to hint at a pullback towards the confluence of 100-DMA and an ascending support line from September 30 near 0.7405.