AUD/USD drops back towards 0.6900 on China’s downbeat Retail Sales, Industrial Production

• AUD/USD takes offers to refresh intraday low, reverses Friday’s recovery moves amid disappointment from key customer.
• China Retail Sales slumped 11.1%, Industrial Production growth contracted 2.9% in April.
• PBOC keeps 1-year MLF unchanged, Beijing extends “work-from-home” guidance in four districts.

AUD/USD reverses the previous day’s corrective pullback by dropping back towards 0.6900 following China’s downbeat prints of Retail Sales and Industrial Production (IP) for April. Also weighing on the pair were earlier headlines from China and an absence of major positives in Asia. That said, the quote drops to refresh intraday low around 0.6910 by the press time of Monday’s Asian session.

China’s Retail Sales dropped to -11.1%, more than the -6.0% forecast and -3.5% expected, whereas the Industrial Production (IP) growth turned negative with -2.9% figures compared to 7.0% expected growth.

Read: China Retail Sales and industry data sinks AUD/USD

Earlier in the day, the People’s Bank of China (PBOC) kept the Medium-Term Lending Facility (MLF) rate for 1-year unchanged at around 2.85%. Although traders widely expected the move, the fourth straight month of inaction from the PBOC worries AUD/USD buyers of late.

On the same line was the weekend news suggesting Beijing’s guidelines to work from home for four districts, including the heavyweight Chaoyang. The dragon nation’s powerhouse previously mandated a three-day “homestay” for residents for testing. Additionally, news that many activity restrictions remain intact in Shanghai, despite the zero-covid outside quarantine areas in 15 of 16 districts, also challenges AUD/USD bulls.

It’s worth noting that Friday’s downbeat prints of the US Michigan Consumer Sentiment Index for May, backed by Fed Chair Jerome Powell’s repetition of 50 bps rate hikes concerns, helped the AUD/USD pair to recover from a two-year low. The absence of any major updates on that front during the weekend, however, seems to have paused the pair buyers of late. Furthermore, worsening geopolitical concerns in Ukraine joins the European Union’s (EU) plan for more sanctions on Russia to weigh on sentiment, as well as on the pair prices. Also challenging the mood are broad fears over inflation and economic growth moving forward, mainly due to the covid resurgence in China and the Russia-Ukraine tussles, not to forget tighter monetary policies.

Amid these plays, the S&P 500 Futures print mild losses after the Wall Street benchmarks rallied the previous day. Further, the US 10-year Treasury yields struggle to extend Friday’s recovery moves as the bond coupon seesaws around 2.95% by the press time.

Moving on, AUD/USD traders will keep their eyes on the risk catalysts, mainly on the updates from China and Russia, for fresh impulse. However, major attention will be given to the US Retail Sales and the minutes of the latest Reserve Bank of Australia (RBA) meeting for clear directions.

Technical analysis

Despite the corrective pullback from the two-year low, AUD/USD bulls need validation from January’s bottom surrounding 0.6965 to convince short-term buyers. Failing to do so can redirect the quote towards the recently flashed multi-month low near 0.6830.