AUD/USD retreats towards 0.6800 on Australia Treasurer Chalmers’ fears, China/Aussie data, RBA Minutes eyed

• AUD/USD begins trading week on a defensive note after posting the biggest weekly gain since November.
• Aussie Treasurer Chalmers fears economic slowdown, Friday’s upbeat US consumer sentiment data allowed US Dollar bears to lick their wounds.
• Downbeat US inflation clues raise concerns of Fed’s proximity to policy pivot and drowned US Dollar.
• RBA elected Michele Bullock as the next Governor and prod Aussie bulls amid mixed data.

AUD/USD offers a dull start to the week’s trading, after a few days of volatility, as it makes rounds to 0.6840 amid early Monday morning in Asia. In doing so, the Aussie pair stays defensive after reversing from a one-month high, as well as posting the biggest weekly gain since November 2022.

That said, the Aussie pair’s latest weakness could be linked to downbeat comments from Australia Treasurer Jim Chalmers, as well as the upbeat US Consumer Sentiment Index data published the last Friday. Furthermore, a cautious mood ahead of the key China data also allowed the AUD/USD bulls to take a breather after rising heavily in the last week.

Australia Treasurer Chalmers appeared for an interview with the local media during the weekend where he backed the Reserve Bank of Australia’s (RBA) downbeat economic forecasts. In doing so, the policymaker conveyed his expectations of witnessing a sharp economic slowdown, easing inflation and a pick-up in the unemployment rate. "As the Reserve Bank forecasts and the Treasury forecasts have inflation moderating over the coming months, they do have a tick up in unemployment as well," Chalmers told the Australian Broadcasting Corp per Reuters.

On the other hand, the preliminary reading of the University of Michigan's (UoM) Consumer Confidence Index rose to 72.6 from 64.4 in June, versus the market’s expectations of 65.5. Further details suggested that the one-year and 5-year consumer inflation expectations per the UoM survey edged higher to 3.4% and 3.1% in that order versus 3.3% and 3% respective priors. Earlier in the week, the US Consumer Price Index (CPI) and Producer Price Index (PPI) for June dropped to 3.0% and 0.1% on a yearly basis from 4.0% and 0.9% YoY in that order, which in turn drowned the US Dollar amid fears of nearness to the Fed’s policy pivot.

It should be noted that the selection of Michele Bullock as the next RBA Governor and her initial comments also weighed on the AUD/USD price as she flagged concerns about witnessing an economic slowdown. Furthermore, fears about China’s slowdown in economic recovery and the US-China tension also challenge the Aussie pair.

Amid these plays, equities has a good week and yields drowned, which in turn weighed on the US Dollar Index and propelled the AUD/USD price despite the latest retreat.

Moving on, China’s second quarter (Q2) 2023 Gross Domestic Product (GDP) will join the Industrial Production and Retail Sales for June to direct immediate AUD/USD moves. However, major attention will be given to this week’s RBA Minutes and Aussie job number, as well as the US Retail Sales for June for clear directions.

Technical analysis

Double tops around 0.6900 and nearly overbought RSI conditions suggest a pullback toward the 0.6780 horizontal support. However, a convergence of the 50-SMA and 100-SMA, near 0.6685 at the latest, appears a tough nut to crack for the bears before retaking control.