AUD/USD leans bearish towards 0.7200 after Fed Minutes, US ISM PMI eyed

• AUD/USD grinds lower after FOMC Minutes, Aussie PMIs.
• Yields rally post-FOMC Minutes as policymakers discussed odds of rate-hike, balance-sheet accommodation.
• Jump in December’s ADP Employment Change also propel faster Fed rate hike chatters.
• Aussie PMIs match initial forecast for December, US ISM Services PMI, Jobless Claims will be important for fresh impulse.

AUD/USD struggles to hold the grounds, drift lower around 0.7220 during early Thursday morning in Asia. The risk barometer pair dropped nearly 50 pips following the Fed Minutes but steadied close to 0.7215-25 before recently leaning bearish.

Fears of the coronavirus and Fed rate hike could be cited as the main catalysts that recently weighed on the AUD/USD prices, via stronger US Treasury yields.

Although global policymakers tried not to scream on record covid infections, by citing scientific studies terming Omicron as a mild covid strain, findings of another virus variant and strain on multiple medical systems highlighted the COVID-19 woes. It’s worth noting that the virus cases are doubling faster and the fresh virus version, founded by France, is said to spread more widely than the South African variant, namely Omicron.

On the other hand, the Fed interest rate futures point at the 80% chance of a hike in March 2022, which in turn fuels the US Treasury yields and the US dollar. The odds of Fed rate hikes rallied sharply after the latest FOMC Minutes conveyed, “In light of elevated inflation pressures and the strengthening labor market, participants judged that the increase in policy accommodation provided by the ongoing pace of net asset purchases was no longer necessary.” The Fed Minutes also signals that the policymakers also judged conditions for a rate hike could be met relatively soon if the recent pace of labor market improvements continues.

It’s worth noting that the US ADP Employment Change rallied to 807K versus 400K expected and offered a strong push to the US bond yields and the greenback, though not until the release of FOMC Minutes.

Additionally, the final prints of Australia’s Commonwealth Bank Services PMI and Composite PMI matched initial forecasts with 55.1 and 54.9 respective figure and failed to lift the AUD/USD prices.

Other than what’s already mentioned above, China’s hardships, mainly due to the virus and Evergrande, join failed attempt to tame yuan appreciation, to weigh on the AUD/USD.

Amid these plays, the US 10-year Treasury yields ended Wednesday’s North American session up3.4 basis points (bps) to 1.70%, the highest level since April 2021. The same weighed on the Wall Street benchmarks and dragged commodities to the south.

Moving on, a light calendar ahead of the US session can help AUD/USD bears to extend the recent pullback considering downbeat risk catalysts. However, the US ISM Services PMI for December and the weekly Jobless Claims will be important to watch afterward.

Technical analysis

Despite the latest pullback, AUD/USD keeps the bounce off 21-DMA, around 0.7195 by the press time, amid firmer RSI and bullish MACD signals, which in turn hints at further upside towards a convergence of the 100-DMA and upper line of a monthly rising wedge bearish pattern. Ahead of the key 0.7290 hurdle, 50% Fibonacci retracement (Fibo.) of October-December downside, around 0.7275, will also challenge the AUD/USD bulls.