AUD/USD bulls take a breather on the way to 0.6800 on downbeat China inflation

• AUD/USD eases from intraday high after softer China inflation data for August.
• China’s CPI drops to 2.5% YoY, PPI also declines to 2.3% yearly.
• US-China headlines, recent data from major economies and confidence in central bankers underpin market’s optimism.
• RBA vs. Fed sentiment appear a negative catalyst for the pair.

AUD/USD retreats from intraday high after witnessing softer inflation data from a major customer China during Friday’s Asian session. Even so, the risk-on mood keeps the pair buyers hopeful as the quote prints 0.53% intraday gains around 0.6780 by the press time.

China’s Consumer Price Index (CPI) and Producer Price Index (PPI) both print unwelcome numbers for August. That said, the headline CPI eased to 2.5% YoY versus 2.8% market forecasts and 2.7% prior while the PPI dropped to 2.3% compared to 3.1% expected and 4.2% prior.

It should be noted comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood. On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies.

US Treasury Secretary Yellen raised hopes for softer inflation and US President Biden’s consideration to remove some tariffs on China. Talking about data, after recently firmer ISM PMIs and Goods Trade Balance, the US Weekly Initial Jobless Claims slumped to the lowest levels since May, with the latest figures beyond 222K.

Previously, the European Central Bank (ECB) matched the market’s expectations by announcing a 75 basis point (bps) increase in the key rates while Fed Chairman Jerome Powell said that they need to act forthrightly and strongly on inflation, as reported by Reuters.

While portraying the mood, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,020. At home, firmer commodity prices favor the benchmark S&P/ASX200 index to print mild gains.

Having witnessed an initial reaction to inflation data from the key customer, AUD/USD traders should pay attention to the last lot of Fedspeak ahead of the blackout period starting from this weekend. It should be noted that the contradiction between the dovish comments from Reserve Bank of Australia (RBA) Governor Philip Lowe and the hawkish bias of Fed Chair Powell seems to keep the pair bears hopeful.

With this in mind, Australia and New Zealand Banking Group (ANZ) said, “ANZ economists have revised down the pace at which the RBA is expected to hike interest rates. A 50bp hike is still expected in October, but this is then expected to ease back to two 25bp hikes in November and December. However, the expected terminal rate is still expected to be 3.35%.”

Technical analysis

AUD/USD extends Wednesday’s bounce off the monthly bearish channel’s support line, around 0.6670 by the press time, to approach the 10-DMA hurdle surrounding 0.6800. However, a convergence of the 20-DMA and the stated channel’s resistance line, close to 0.6870-75, appears a tough nut to crack for the pair buyers afterward.