AUD/USD drops 25 pips as Australia Q2 inflation matches forecasts, Fed in focus

• AUD/USD takes offers to renew intraday low as Aussie Q2 inflation data fails to offer positive surprise.
• Cautious optimism prevails ahead of Biden-Xi talks, FOMC even as recession fears dominate.
• Fed is expected to announce 0.75% rate hike, Powell’s speech will be crucial amid economic slowdown concerns.
• US Durable Goods Orders, risk catalysts will be important as well.

AUD/USD marked a 25 pip slump on the Aussie inflation release during early Wednesday. With this, the Aussie pair reverses the early-day rebound while refreshing the intraday low around 0.6930 at the latest.

That said, Australia’s headline Consumer Price Index (CPI) matches 1.8% QoQ forecasts, versus 2.1% prior whereas the YoY release eased below 6.2% expectations to 6.1%. Further, the RBA Trimmed Mean CPI also matched the 1.5% QoQ market consensus but rose past 4.7% forecasts to 4.9% on YoY.

Also read: Breaking: Aussie CPI comes in line with expectations, a disappointment to the AUD bulls

Contrary to the Australia CPI data, the recent improvement in the market’s risk appetite favored the AUD/USD prices earlier.

That said, US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping, on Thursday, appears to have recently underpinned the market’s cautious optimism. The risk-on mood could be witnessed in the 0.80% intraday gains of the S&P 500 Futures, as well as the US 10-year Treasury yields’ rebound, up 2.5 basis points (bps) to 2.81% by the press time.

It should, however, be noted that prominent institutes like the International Monetary Fund (IMF) and the global rating giant Moody’s have already raised concerns over the recession, which in turn probes AUD/USD bulls. Further, fears of the Fed’s aggression also weigh on the quote. The same drowned Wall Street the previous day while keeping the US Treasury yields mostly pressured. It’s worth noting that the difference between the 2-year and the 10-year bond coupons widens the most since the year 2000, which in turn highlighted the rush towards risk-safety.

Having witnessed the initial reaction to Australia’s key inflation gauge, AUD/USD traders may keep their eyes on the chatters surrounding the Xi-Biden talks and European recession for fresh impulse. Following that, the US Durable Goods Orders for June, expected -0.4% versus 0.8% prior, may offer intermediate directions ahead of the Fed-led market volatility.

Technical analysis

Considering the AUD/USD pair’s successful trading above the 21-DMA level surrounding 0.6850, buyers can aim for a downward sloping resistance line from mid-April, near 0.6950. However, any further upside will be challenged by the monthly peak of 0.6983. That said, the MACD and RSI (14) hint at the quote’s further advances.