AUD/USD holds lower ground near multi-day low below 0.6600 ahead of China inflation

• AUD/USD reverses early Wednesday’s corrective bounce, remains pressured at four-month low.
• Sour sentiment, dovish comments from RBA’s Lowe joined upbeat US data to weigh on Aussie price.
• Inactive markets restrict AUD/USD moves ahead of key data.
• China CPI/PPI can entertain traders before Friday’s US jobs report.

AUD/USD holds its place on the bear’s radar, after an initial attempt to leave the zone, as it stays depressed near 0.6590 amid early Thursday morning in Asia.

The Aussie pair tried paring weekly losses at the lowest levels in four months during early Wednesday amid sluggish markets. However, dovish comments from Reserve Bank of Australia (RBA) Governor Philip Lowe joined upbeat US data and repetition of the hawkish statements from Federal Reserve Chairman Jerome Powell confirmed the bear’s dominance. It should be noted that the cautious mood ahead of today’s China inflation numbers seems to probe the risk barometer, due to its ties with the dragon nation.

On early Wednesday, the US removed testing restrictions on the travelers from China and joined a light calendar to allow the traders to lick their wounds after a volatile Tuesday. However, RBA’s Lowe said that the RBA was closer to pausing its aggressive cycle of rate increases as the policy was now in the restrictive territory and there were signs the economy was responding. It should be noted that Lowe also mentioned, “China reopening is positive for our economy,” while also adding that no particular implications for inflation from China reopening.

Elsewhere, Fed’s Powell repeated his hawkish calls of readiness to lift the rate while highlighting stronger-than-expected inflation pressure. The same bolstered calls for the Fed’s 50 bps rate hike but the Testimony 2.0 didn’t have anything new from what’s already heard on Tuesday and hence traders were mostly afraid of taking any major steps.

Talking about the data, the US ADP Employment Change rose to 242K in February versus 200K market forecasts and 119K prior (revised). Further, the US Goods and Services Trade Balance dropped to $-68.3B from the $-67.2B previous reading (revised) and $-68.9B analysts’ estimations. It should be noted that the US JOLTS Job Openings for January improved to 10.824M versus 10.6M expected but eased from 11.234M revised prior.

Against this backdrop, Wall Street closed mixed and the US Treasury bond yields remained firmer with minor moves and keeping the yield curve inversion the widest since 1981, which in turn allowed the US Dollar Index (DXY) to remain firmer.

Looking ahead, China’s monthly Consumer Price Index (CPI) and the Producer Price Index (PPI) for February will be important after the latest improvements in the Aussie-China ties. However, RBA’s Lowe has already mentioned no effects of the inflation emanating from China reopening on Canberra and the same could weigh on the AUD/USD in case of a downbeat outcome. Above all, Friday’s US Nonfarm Payrolls are the key to clear directions.

Technical analysis

AUD/USD sellers appear to run out of steam amid oversold RSI (14) conditions. With this, the 0.6540-20 support zone, marked during September-November 2022, gains major attention. The recovery moves, however, remain elusive unless the quote offers a daily closing beyond the one-month-old descending trend line, previous support around 0.6615.