AUD/USD: 10-DMA defends bulls above 0.7100 despite sour sentiment

• AUD/USD dropped the most in a week before the day-end corrective pullback.
• Cautious mood ahead of the key central bank meetings, Omicron woes offered a negative start to the week.
• China’s readiness for more stimulus fails to save the bulls but 10-DMA does.
• Aussie NAB figures, US PPI will decorate calendar but risk catalysts are more important.

AUD/USD consolidates the heaviest daily fall in a week around 0.7130 during early Tuesday morning in Asia. Market’s fears at the start of the crucial week could be linked to the Aussie pair’s declines the previous day, after failing to cross an important resistance amid late last week.

Anxiety over the US Federal Reserve’s (Fed) next step amid the fears emanating from the South African covid variant, dubbed as Omicron, becomes the cornerstone of the latest sour sentiment. Not only the Fed but the concerns relating to the European Central Bank (ECB) and the Bank of England (BOE) were on the same line that roiled the mood of late.

Friday’s US Consumer Price Index (CPI) for November matched market consensus and the US inflation expectations, portrayed by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, slumped to the 10-week low on Monday. In addition to receding inflation woes, the UK’s first Omicron-linked death and return of the mask mandate in California also makes it tough for the Fed has to match hawkish expectations.

Also challenging the AUD/USD buyers is a lack of confidence in China’s vow to stabilize the economy in 2022 with monetary and fiscal measures. During the 2021 Central Economic Work Conference, Chinese officials showed readiness to use monetary and fiscal policy tools to stabilize the world’s second-largest economy in 2022.

Furthermore, the recently escalating tensions between the US and China could also be cited as the factor to back the latest risk-off mood.

On the contrary, hopes of faster progress on the US President Joe Biden’s $1.75 trillion aide package join a pullback in the US dollar to probe the AUD/USD bears.

Amid these plays, the Wall Street benchmarks posted losses while the US 10-year Treasury yields also dropped amid the rush to risk safety that propelled traditional safe-havens like gold and US bonds.

Moving on, National Australia Bank’s (NAB) Business Confidence and Business Conditions for November can initially entertain AUD/USD traders ahead of the US Producer Price Index (PPI). It should be noted, however, that major attention will be given to the risk catalysts, mainly concerning the inflation and the South African covid variant named Omicron, for fresh impulse.

Technical analysis

Despite crossing 10-DMA, AUD/USD bulls failed to pierce an 11-week-old horizontal hurdle surrounding 0.7175-80 that also includes the 21-DMA. Even so, bullish MACD signals and firmer RSI keeps buyers hopeful. That said, short-term sellers may aim for the 10-DMA level near 0.7110 but the 0.7060 and the 0.7000 support levels will challenge the pair’s further downside.