AUD/USD drops to near 0.6780 ahead of Australian Retail Sales and US debt-ceiling talks

• AUD/USD has corrected marginally to near 0.6780 as the USD Index has extended its recovery above 101.40.
• A contraction in Australian Retail Sales would allow the RBA to keep interest rates steady ahead.
• Republican Speaker Kevin McCarthy is not expected to approve debt ceiling raise without cutting President’s spending initiatives.

The AUD/USD pair has witnessed some correction after failing to extend a rally above the round-level resistance of 0.6800 in the Asian session. The upside bias in the Aussie asset looks solid as the decline is merely a correction, which is generally considered a buying opportunity by the market participants.

Mild losses in the S&P500 futures after a rangebound Monday are portraying a decline in the risk appetite of investors.

The Australian Dollar is in the upside motion ahead of the quarterly Retail Sales (Q1) data. As per the expectations, the economic data contracted by 0.4% vs. a contraction of 0.2% recorded for the fourth quarter of CY2022. This will allow the Reserve Bank of Australia (RBA) to keep interest rates steady after an unexpected interest rate hike by 25 basis points (bps) to 3.85%.

Apart from that, Australia’s budget release will keep the Australian Dollar in action. Australian Treasurer Jim Chalmers has already revealed that the 2022-23 bottom line reached surplus, despite the projected $78bn deficit. Bloomberg reported that Chalmers has been preparing the ground for the surprise return to surplus by noting significant improvement in revenue from higher commodity prices, lower unemployment, and sooner-than-expected real wage growth.

The US Dollar Index (DXY) has climbed above 101.40 and is expected to show a power-pack action amid uncertainty over US debt ceiling talks. US President Joe Biden has invited to Republican leaders for raising the US debt ceiling to allow the US Treasury to make timely payments and avoid any damage to the economy. It is highly likely that Speaker Kevin McCarthy won’t approve debt ceiling raise without cutting President’s spending initiative to safeguard escalating budget deficit.