AUD/USD flirts with 0.70000 on softer Australia Retail Sales, US Q2 GDP eyed

• AUD/USD defends post-Fed rally at six-week high even as Australia Retail Sales eased in June.
• Aussie Retail Sales rose by 0.2% versus 0.5% MoM in June expected and 0.9% prior.
• Australia’s Q2 Import Price Index, Export Price Index also eased.
• Fears of recession jostles with post-Fed optimism, cautious mood ahead of the key data/events also challenge pair buyers.

AUD/USD picks up bids to defend the Fed-inspired gains around 0.7000 threshold despite downbeat data at home. However, the Aussie pair remains sidelined as traders await important data/events amid recession woes.

Australia’s preliminary Retail Sales for June eased while posting a 0.2% monthly growth compared to the market forecasts of 0.5% and 0.9% in previous readings. Further, the second quarter (Q2) Important Price Index and Export Price Index came in mixed as the former arrived better-than-expected 1.9% but the later data eased to 10.7% versus 19.7% expected and 18.0% forecasts.

The data justifies fears of economic slowdown in Australia, earlier conveyed by Bloomberg’s piece reporting excerpts of an economic statement to be delivered to parliament Thursday by Aussie Treasurer Jim Chalmers. However, the anxiety in the market ahead of a meeting between US President Joe Biden and China President Xi Jinpin, as well as the US GDP data, appears to probe the pair traders.

The market’s cautious mood takes clues from the US Treasury yield curve as it continues to signal a wider gap between the short-range bond coupons and the longer-term Treasury yields, which in turn hints at economic pessimism.

The US 10-year Treasury yields dropped nearly four basis points (bps) to 2.78% while the 2-year bond coupons slumped by 2.58% to 2.98% after the Fed’s 0.75% rate hike. Even so, the gap between the key US bond coupons remains the widest since 2000 and in turn hints at the US recession woes. It should be noted that the US 10-year Treasury yield pares recent losses around 2.78% and also remains pressured around 2.98% by the press time.

On Wednesday, the US Federal Reserve (Fed) matched market forecasts by announcing a 75-bps rate increase. The underlying reason for the pair’s weakness could be attributed to Fed Chairman Jerome Powell’s speech as it signaled that the hawks are running out of fuel. Key comments from the Fed’s Powell were that the rates had reached neutrality, so there won't be any more forward guidance, as well as rates will be decided meeting by meeting.

While portraying the mood, the S&P 500 Futures drop 0.15% intraday at the latest.

Looking forward, updates from the virtual meeting between US President Joe Biden and his Chinese counterpart Xi Jinping will join the recession fears to entertain intraday AUD/USD traders. However, major attention will be given to the US Q2 GDP.

Also read: US Gross Domestic Product Preview: Would the US avoid a technical recession?

Technical analysis

A successful upside break of the previous resistance line from April and the 50-DMA, as well as the bullish MACD signals, hint at the AUD/USD pair’s further upside. That said, the 38.2% Fibonacci retracement of the April-July downside, also nearing the mid-June swing high around 0.7070, appears to be the immediate resistance for the pair. Alternatively, pullback moves may initially aim for the 50-DMA level of 0.6972 before testing the previous resistance line near 0.6930.