AUD/USD grinds above 0.6700 as Australia GDP, China/US PMI loom

• AUD/USD stays defensive above 0.6700, having failed to recover much from two-month low.
• Mixed sentiment, month-end consolidation joined upbeat Aussie Retail Sales to probe bears at multi-day low.
• Sellers seek softer prints of Aussie GDP, China PMI to break 0.6700 support.
• Hawkish Fed bets, geopolitical concerns keep bears hopeful even as softer US data restrict immediate downside.

AUD/USD picks up bids to refresh intraday high around 0.6730, following a pullback from 0.6757 in the last hour, as traders await the key Australian fourth-quarter (Q4) Gross Domestic Product (GDP) details. Adding strength to early Wednesday’s cautious mood are the official activity numbers from China.

The Aussie pair managed to bounce off a two-month low the previous day after Australia Retail Sales marked a stellar 1.9% growth in January, versus 1.5% expected and -4.0% prior. Also keeping the AUD/USD buyers hopeful were headlines shared by Politico suggesting US President Joe Biden’s scaling back of the previous plans to restrict American investments in China. Further, mostly softer US data and month-end consolidation also strengthened the Aussie pair’s corrective bounce off the multi-day low on Tuesday.

That said, the US Conference Board’s (CB) Consumer Confidence dropped for the second consecutive month to 102.9 versus 106.0 prior (revised) while US Housing Price Index drops 0.1% in December versus -0.6% market forecasts and -0.1% prior. On the same line, the S&P/Case-Shiller Home Price Indices grew 4.6% YoY during the said month compared to 6.1% market expectations and 6.8% previous readings. Furthermore, Chicago Purchasing Managers’ Index for February eased to 43.6 from 44.3 previous readings and 45.0 market consensus. Additionally, the Richmond Fed Manufacturing Index for the said month eased below 11.0 prior and -5.0 expected to -16 for the said month.

It should, however, be noted that the hawkish Fed bets remain on the table despite the recently downbeat US data and keeps exerting downside pressure on the AUD/USD price ahead of the key Aussie data. As a result, the FEDWATCH tool highlights the market’s bets on Fed fund futures to be around 5.4% by late 2023 versus 5.1% signaled earlier by the US Federal Reserve (Fed).

Amid these plays, Wall Street closed mixed and the US Treasury bond yields marked minor losses while the US Dollar Index (DXY) regained upside momentum in the last hour to end February on a firmer footing, by marking the first monthly gain in five.

Looking ahead, Australia’s Q4 GDP, expected 0.8% QoQ versus 0.6%, will be crucial for the AUD/USD pair before China’s NBS Manufacturing PMI and Non-Manufacturing PMI for January, as well as Caixin Manufacturing PMI for the said month. “We expect Q4 GDP growth to come in at 1.0% q/q (3.0% y/y), suggesting the economy ended the year with quite a bit of momentum despite aggressive monetary tightening. While the partial data suggest a strong outcome for GDP, it will be the inflation and wages indicators in the GDP report that will be key for policy perspective. We expect the RBA’s preferred measure of wider labor costs – non-farm average earnings per hour – to have risen a modest 0.6% q/q,” said Analysts at the ANZ Bank ahead of the data release.

Technical analysis

AUD/USD seesaws around the 100-DMA and an upward-sloping support line from late November 2022, highlighting the importance of the 0.6700 support. However, bears remain hopeful of meeting the last December’s low near 0.6630 unless the quote rises past the 200-DMA hurdle surrounding 0.6800.