AUD/USD struggles below 0.7200 despite firmer sentiment, strong iron ore prices

• AUD/USD retreats from intraday high, fails to extend Friday’s gains.
• Market begins the key week with cautious optimism following Friday’s US CPI data.
• Dalian iron ore futures jumped over 5%, Asia-Pacific stocks trade mixed.
• China data dump can offer intermediate direction ahead of Fed’s verdict, Aussie jobs.

AUD/USD fades Friday recovery moves, easing to 0.7170 ahead of Monday’s European session.

The Aussie pair initially cheered the market’s optimism and stimulus news from Australia, as well as China, to pare the day-start losses. Though, market fears ahead of the key events lined up for publish during the week seem to weigh on the quote of late.

Australia's Treasurer Frydenberg is expected to announce on Monday, an extension to the government’s existing loan guarantee scheme for small to medium-sized businesses due to expire at the end of December, per Aussie media. On the other hand, Chinese policymakers vowed to use monetary and fiscal policy tools to stabilize the world’s second-largest economy in 2022 during the annual Central Economic Work Conference.

Also positive for the AUD/USD are the firmer prices of its largest export item iron ore. “Iron ore futures for May 2021 delivery rises past 5.0% to 671 yuan ($105.46) per ton,” said Reuters during the Asian session.

It’s worth observing that Friday’s US Consumer Price Index (CPI) data favored market sentiment and the AUD/USD prices as the inflation data matched expectations for November. Also favoring the pair buyers was a reduction in the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data.

That said, market fears surrounding the Fed’s faster tapering and rate hike signals haven’t yet faded as a widespread breakout of the South African covid variant, dubbed as Omicron, favors the policy hawks to expect further inflation and the need for tighter policies. On the same line are the chatters over some of the Chinese companies’ production suspension Zhejiang Province and postponing of the SenseTime Hong Kong IPO worth $767 million.

Amid these plays, the US 10-year Treasury yields wobbled around 1.49% while the US stock futures printed mild gains and the Asia-Pacific shares traded mixed at the latest.

Moving on, a lack of major data/events at home will keep AUD/USD traders cautious but Wednesday’s China data dump may provide intermediate relief to the pair optimists before the Fed’s verdict.

Technical analysis

AUD/USD trades successfully above a five-week-old descending trend line and 50-SMA, respectively close to 0.7120 and the 0.7100 threshold, taking rounds to 100-SMA recently. However, a fortnight-long horizontal area challenges the bulls around 0.7190 as MACD shows traders’ indecision and RSI nears the overbought region, suggesting the need for a strong push to the north if buyers want to keep the reins.