AUD/USD drops back towards 0.6900 as softer Aussie data, covid updates join Fed chatters

• AUD/USD fails to extend corrective pullback from monthly low.
• Australia’s NAB Business Confidence, Business Conditions eased for May.
• Risk appetite remains jittery as yields seesaw around multi-year high, Australia’s ASX 200 drop 5.0%.
• Jump in expectations of the Fed’s 75 bp rate hike favor bears, US PPI, China’s covid updates eyed for intraday directions.

AUD/USD retreats towards the monthly low flashed the previous day, paring the first daily gains in five around 0.6930 during early Tuesday morning in Europe. The pair’s latest weakness could be linked to the downbeat Aussie data, as well as covid fears emanating from China, amid a sluggish Asian session.

The National Australia Bank’s (NAB) Business Conditions and Business Confidence gauges eased in May to suggest the pessimism surrounding the Aussie markets. That said, the sentiment indices recently dropped to 16 and 6 respectively for Business Conditions and Business Confidence versus the previous readouts of 20 and 10 in that order.

Elsewhere, Beijing covid cases hit a three-week high, per Bloomberg, which in turn propels the virus woes and the resulted economic fears that recently weighed on the risk barometer AUD/USD pair. “The city recorded 74 infections for Monday, the most since May 22, when Beijing saw a record number of cases for the current outbreak,” said Bloomberg.

Above all, the US rate futures imply a 96% chance of the Fed raising rates by 75 bps at the June meeting, versus not more than 30% a few days back, which in turn acts as the key bearish catalyst for the AUD/USD traders.

It's worth observing that the US 10-year Treasury yields remain mildly bid near the highest levels since 2011, tested the previous day, whereas Australia's benchmark equity index ASX 200 dropped nearly 5.0% at the latest to keep bears hopeful.

On the contrary, Global Times raised expectations of easing US-China tension as it said, “Senior Chinese diplomat Yang Jiechi held talks with US National Security Advisor Sullivan in Luxembourg. The two agreed to reduce misunderstanding and miscalculation, and properly manage differences, saying it is necessary & beneficial to keep communication channels open.”

Furthermore, chatters that the Reserve Bank of Australia (RBA) will need to adhere to aggressive rate action than recently suggested also restrict short-term AUD/USD downside.

Moving on, the US Producer Price Index (PPI) for April, expected 10.9% YoY versus 11.0% prior, could entertain traders ahead of Wednesday’s Federal Open Market Committee (FOMC). Also important will be the Retail Sales data from the US and China.

Technical analysis

Unless regaining the 0.7000 threshold, AUD/USD remains vulnerable to refreshing the yearly low, around 0.6830 by the press time.