AUD/USD: Depressed below 0.7800 on US dollar comeback, China PMI eyed

• AUD/USD remains on the back foot after refreshing six-week high.
• Upbeat Aussie data, stimulus hopes failed to recall buyers as US dollar tracks strong Treasury yields.
• Strong US Q1 GDP battles mixed housing, downbeat Jobless Claims.
• China’s NBS Manufacturing PMI, second-tier data from Australia become the key.

AUD/USD wavers around 0.7770 after a volatile day, rising to the highest since early March before declining to mid-0.7700s, amid the early Friday morning in Asia. In doing so, the aussie pair fades bounce off Thursday’s low even as US equities recover initial losses. The reason could be traces from the US dollar gains and the cautious sentiment ahead of China’s official Manufacturing and Non-Manufacturing PMI data for April.

Return of reflation fears?

The recent jump in the inflation expectations, to the highest since April 2014, followed by stronger preliminary readings of US Q1 GDP, 6.4% YoY versus 6.1% forecast and 4.3% prior, recall reflation fears even as the US Federal Reserve (Fed) turns it's down. The same seems to have put a bid under the safe-haven assets such as the US dollar, while also propelling the US Treasury yields.

It’s worth mentioning that US President Joe Biden’s push to the Congress, to support his spending in the first ‘Joint Congress’ address also adds to the fears of higher inflation pushing the global central banks to dial back some of the easy money policies.

At home, Aussie Import and Export Price Index came in stronger and the West stays on the path of recovery from the coronavirus (COVID-19). Though, Asia’s covid woes and US President Biden’s tough stand against China and Russia add to the risk-off mood, which in turn weighs on the quotes.

Against this backdrop, Wall Street posts mild gains after the recent recovery moves while the US 10-year Treasury yields ease from the 13-day top, up 2.1 basis points (bps) by the end of Thursday’s North American trading session.

Given the presence of the US dollar recovery and a lack of major catalysts, AUD/USD may remain pressured ahead of China’s NBS Manufacturing PMI for April, expected 51.7 versus 51.9 prior. Also important will be Non-Manufacturing PMI from the dragon nation as it has been rallying off-late and is likely to ease from 56.3 prior to 52.6. Additionally, Australia’s Private Sector Credit and Producer Price Index are some extra figures that could provide immediate direction to the quote. It should, however, be noted that the risk catalysts keep the driver’s seat.

Technical analysis

Unless breaking below the monthly support line and 50-day SMA, respectively around 0.7735 and 0.7720, AUD/USD prices can keep hammering the 0.7820 immediate hurdle ahead of the early March tops close to 0.7840.