AUD/USD looks to fresh two-month low under 0.7200 on inflation, coronavirus fears

• AUD/USD remains sidelined after dropping to the lowest levels since late September.
• Aussie data improved, virus fears recede at home but mostly firmer US data, covid woes from Eurozone favor bears.
• Fed Minutes, Fed’s Daly also highlights rate hike calls to weigh on the pair.
• US holiday, light calendar in Asia hint at a sluggish session but virus, inflation headlines keep driver’s seat.

AUD/USD seesaws near 0.7200 amid early Thursday morning in Asia, following a south-run to refresh an eight-week low with 0.7183 figure the previous day.

The Aussie pair portrays the market’s sour sentiment amid escalating price pressure and fresh concerns over the return of the coronavirus-led lockdowns. In doing so, the quote ignores mildly positive fundamentals at home amid the Reserve Bank of Australia’s (RBA) repeated rejection to rate hikes.

With a 30-year high of the Fed’s preferred inflation gauge, namely Core PCE Price Index, joining welcome prints of Weekly Jobless Claims, the Fed policymakers’ concerns over tapering and rate hike seems justified, as reflected by the recent FOMC Minutes. Also highlighting the inflation fears and a push for the Fed rate hike were the recent comments from Federal Reserve Bank of San Francisco President and FOMC member Mary Daly who sees, per Reuters, the case for speeding up the QE taper and expects rate hikes at end of 2022.

Other than the fears of the Fed rate hike, worsening COVID-19 conditions in the bloc also weigh on the AUD/USD prices, due to its risk barometer status. After Austria and the Netherlands, record-high cases in Germany triggered multiple warnings to recall the lockdowns from the region.

At home, Construction Work Done during the Q3 improved from -3.1% expected to -0.3%, versus upwardly revised 2.2% previous readouts. Additionally, new daily infections in Australia remain sidelined around 1,500 since last month, helping the Pacific major to announce the easing of the virus-led activity restrictions.

Amid these plays, the US 10-year Treasury yields ease 2.2 basis points (bps) to 1.64% after refreshing monthly high. Even so, the US Dollar Index (DXY) remains firm around the 16-month top while the equities trade mixed of late.

Looking forward, the Thanksgiving Day holiday in the US and an absence of major data/events at home can restrict AUD/USD moves, suggesting a corrective pullback in case of surprise positives. However, bears are likely to keep the reins considering the latest challenges to market sentiment and favors for the Fed rate hike.

Technical analysis

With a daily closing below 78.6% % Fibonacci retracement (Fibo.) of August-October upside, AUD/USD bears are ready to challenge September’s monthly bottom of 0.7169, as well as support line of a month-long falling wedge bullish formation near 0.7165. However, oversold RSI conditions could restrict the quote’s further weakness. On the contrary, the stated wedge’s resistance line around 0.7270 guards the immediate upside of the pair.