AUD/USD aims to stretch recovery above 0.6720 amid hopes of China’s economic recovery

• AUD/USD is aiming to extend its recovery above 0.6720 as the market sentiment is upbeat.
• Investors are hoping that the Fed could pause its policy-tightening spell after hiking interest rates in July.
• Australia’s monthly inflation is seen softening to 6.1% from the prior release of 6.8%.

The AUD/USD pair is looking to stretch its recovery above 0.6720 in the early London session. The Aussie asset has picked strength as investors are hoping that the Chinese economy will report a solid recovery in the second quarter.

S&P500 futures have generated stellar gains in Europe despite recognizing negative cues on Tuesday. The overall market mood has turned extremely positive as investors have started shrugging-off fears of global recession due to higher interest rates from central banks.

The US Dollar Index (DXY) is hovering near day’s low around 102.55 as investors are hoping that the Federal Reserve (Fed) could pause its policy-tightening spell after hiking interest rates in July. However, the investing community is still mixed about the monetary outlook.

Analysts at Rabobank expect the Fed to hike in July, a more moderate pace would imply skipping September and that would leave us with November as the meeting for the second hike.

Meanwhile, the Australian Dollar has shown stellar strength as investors are confident about economic recovery in the second quarter in China after commentary from China's Premier Li Qiang. China’s Li cited that economic growth in the second quarter will be higher than the first and is expected to reach the annual economic growth target of around 5% at the World Economic Forum, as reported by Reuters. He further added we will launch more practical and effective measures in expanding the potential of domestic demand.

It is worth noting that Australia is the leading trading partner of China and an economic recovery in China would also strengthen the Australian Dollar.

Going forward, investors will keep focus on the release of Australia’s monthly Consumer Price Index (CPI) data. As per the expectations, inflation is seen softening to 6.1% from the prior release of 6.8%. This might allow the Reserve Bank of Australia (RBA) to keep monetary policy stable.