AUD/USD marches towards 0.6700 on economic optimism, easy inflation signals from Fed officials

• AUD/USD picks up bids to renew intraday high, extends the previous day’s rebound from one-week low.
• Australian Treasurer Chalmers reject recession woes despite suggesting drastic economic slowdown, RBA’s Bullock fails to gain attention.
• China-linked optimism, Fed policymakers’ receding hawkish bias also propel Aussie prices.
• US CPI, FOMC Minutes will be crucial to watch for clear directions as RBA’s rate-hike pause prods AUD/USD bulls.

AUD/USD renews an intraday high around 0.6670 as receding fears of Aussie recession joins the easing hawkish bias of the Federal Reserve (Fed) officials during early Wednesday. Adding strength to the upside momentum could be the upbeat catalysts surrounding Australia’s biggest customer, namely China.

Recently, Australian Treasurer Jim Chalmers spoke in an interview with the Australian Broadcasting Corporation radio on Wednesday and turned down fears of recession. The policymakers said, “The country will avoid a recession but warned the economy will slow significantly.”

On the other hand, RBA Assistant Governor (Financial System) Michele Bullock highlights the importance of inflation in monetary policy decisions but failed to gain any attention as the AUD/USD pair remains firmer.

It should be noted that the IMF’s optimism surrounding China seems to also favor the AUD/USD bulls due to its trading ties with the dragon nation. That said, IMF's Asia-Pacific Chief Krishna Srinivasan said earlier in the day that China rebounded much faster than anticipated, per Bloomberg. On Tuesday, the IMF kept its growth estimations for China intact at 5.2% for 2023 and 4.5% for 2024.

Elsewhere, Minneapolis Fed President Neel Kashkari mentioned that he is less optimistic than the bond market on the speed of inflation's fall. However, Philadelphia Fed President Patrick Harker and New York Fed President John Williams previously signaled to ease inflation pressure and weighed on the market’s bets of the Fed’s 0.25% rate hike in May. With this, the CME’s FedWatch Tool suggests a 69.5% chance of the US central bank's hawkish action in the next monetary policy meeting versus 71.2% marked the previous day.

Against this backdrop, US Treasury bond yields grind higher and so do the S&P 500 Futures but the US Dollar Index (DXY) drops for the second consecutive day, down 0.08% intraday near 102.07 at the latest.

To sum up, AUD/USD cheers cautious optimism in the market, as well as economic optimism surrounding Australia and China. However, the quote’s further advances hinge on the US US Consumer Price Index (CPI) for March and the Minutes of the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting. Should the US inflation defies downbeat expectations and the Fed Minutes signal hawkish discussions, the Aussie may recollect the RBA’s dovish move and can pare the latest gains.

Also read: US CPI Preview: US Dollar on the back foot and poised to fall further

Technical analysis

Although a one-month-old horizontal support zone restricts immediate AUD/USD downside bear 0.6625-20, recovery remains elusive unless it bounces back beyond the one-month-old previous support line, around 0.6700 by the press time.