AUD/USD drops back to mid-0.6600s on mixed Aussie data, doubts over US debt limit optimism

• AUD/USD reverses from intraday high amid fresh challenges to sentiment.
• Australia cancels quad meeting on Biden’s change of schedule.
• Aussie Wage Price Index remains unchanged on QoQ, improves on YoY.
• US policymakers appear hopes of avoiding default but lack of details raise doubts on optimism.

AUD/USD takes offers to prod the intraday low surrounding 0.6645 as market sentiment fades the early Asian session optimism ahead of Wednesday’s European morning. In doing so, the Aussie pair also takes clues from the mixed Australian wage data, as well as political headlines from Canberra.

Although the US congressional leaders cited possibilities of a deal to avoid the debt default by next week, a lack details and mixed outlook of Democrats seem to prod the optimism of late. Additionally, fears that the global markets will witness a shock on the US debt ceiling expiry, looming early June, also weigh on the sentiment.

At home, the headlines suggesting the cancellation of the quad meeting in Australia and the mixed Aussie wage price index exert downside pressure on the Australian Dollar. “Australia Prime Minister Anthony Albanese said, per Reuters, “The leaders of Australia, the United States, India and Japan would instead meet at the G7 in Japan this weekend, after Biden canceled a trip to Sydney on the second leg of his upcoming Asia trip, which was also to have included a visit to Papua New Guinea.”

On the same line, upbeat US Retail Sales and Industrial Production details for April allowed the Federal Reserve (Fed) officials to remain hawkish and prod the risk-on mood, as well as the AUD/USD buyers. Recently among them were Federal Reserve Bank of Chicago President Austan Goolsbee and Atlanta Fed President Raphael Bostic.

It’s worth mentioning that Australia’s Wage Price Index repeated 0.8% QoQ figures for the first quarter (Q1) of 2023, below the 0.9% market consensus, whereas the YoY numbers improved to 3.7% versus 3.6% expected and 3.3% previous readings.

Further, hopes of more investment from China also should have favored the AUD/USD prices but did not amid the latest shift in the sentiment. China’s State Planner National Development and Reform Commission of the People's Republic of China (NDRC) recently mentioned that it'll take measures to unleash consumption potential and to make continuous efforts in stabilizing and expanding manufacturing investment.

Against this backdrop, S&P500 Futures remain mildly bid near 4,132 and the key US Treasury bond yields retreat from the two-week high marked the previous day. However, the US Dollar Index (DXY) bounces off its intraday low to 102.65 whereas the Asia-Pacific shares grind lower of late.

Looking ahead, AUD/USD pair remains vulnerable to shifts in the market sentiment and the US Dollar amid a light calendar at home and abroad ahead of Thursday’s monthly employment report. Should the scheduled Aussie jobs data print upbeat figures, the Reserve Bank of Australia (RBA) hawks could justify their latest rate hikes and allow the pair to consolidate the latest losses.

Technical analysis

The failure to provide a daily closing beyond the 10-DMA hurdle, around 0.6715, directs AUD/USD towards an upward-sloping support line from March 10, close to 0.6605 by the press time.