AUD/USD grinds higher past 0.6900 on upbeat China data dump, Fed eyed

• AUD/USD extends the corrective pullback from monthly low on firmer China data.
• China’s Retail Sales, Industrial Production both improved in May.
• Australia Westpac Consumer Confidence shrank more than expected for June.
• Market consolidation awaits Fed’s verdict, US data, risk catalysts may offer intermediate moves.

AUD/USD seesaws around intraday high near 0.6920-25 as upbeat China data joins softer US Treasury yields to entertain buyers ahead of the key Federal Open Market Committee (FOMC). That said, the hawkish hopes from the Reserve Bank of Australia (RBA) and news of higher Aussie wage prices also favored the pair buyers during early Wednesday.

China’s Retail Sales improved to -6.7% versus -7.1% expected and -11.1% prior while the Industrial Production reversed -0.7% forecast with 0.7% expansion during May. Earlier in the day, Australia’s Westpac Consumer Confidence for June dropped below -0.7% market forecasts to -4.5%, versus -5.6%.

Read: China’s May Industrial Output unexpectedly rebounds 0.7%, Retail Sales beat estimates

It’s worth noting that news of an increase in the Aussie minimum wage by 5.2%, to A$40/week, joined the strong Australia Treasury bond yields and calls for the Reserve Bank of Australia’s (RBA) aggression to favor AUD/USD bulls.

That said, Australia’s 10-year Treasury yields remain mildly bid near 4.11%, the highest levels in eight years. The bond coupons recently rose on the comments from Goldman Sachs (GS) Chief Australia Economist Andrew Boak. “We now expect the RBA to raise rates by 50bps in August and September, up from 25bps previously,” said Boak from GS.

While Aussie fundamentals seemed to have recently favored the AUD/USD pair’s corrective pullback, a retreat in the US bond coupons and the softer US data could also be cited as the catalysts.

US 10-year Treasury bond yields drop 5.6 basis points (bps) to 3.43% as the bond coupons ease from the fresh high since 2011. The same underpins the mildly bid S&P 500 Futures around 3,750 to keep the AUD/USD afloat.

Moving on, the PPI matched 0.8% MoM forecasts, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

Alternatively, rising expectations of a 75 bps rate hike from the Fed join the diplomatic push from the White House officials to hint at the US dollar’s rebound, which challenges the AUD/USD pair. White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.

Additionally, covid woes in China, the world’s second-largest economy and Australia’s key customer, also weigh on the Aussie prices. Beijing reported the highest coronavirus cases in three weeks the previous day and called for more activity restrictions. Shanghai, on the other hand, marked ease into the COVID-19 cases but keeps the recently announced limits to curb the virus from spreading too fast.

That said, AUD/USD pair may witness lackluster moves and can keep the latest rebound from the monthly low ahead of the US Retail Sales for May, expected 0.2% MoM versus 0.9% prior. Though, the Fed meeting will be crucial to watch for clear directions.

Read: Federal Reserve Interest Rate Decision Preview: Damn the inflation, full speed ahead

Technical analysis

AUD/USD bulls need to cross the 2021 bottom near 0.7000 before directing the quote the further north. Otherwise, a clear downside break of the yearly low surrounding 0.6830, marked in May, could highlight June 2020 low surrounding 0.6775 for bears.