AUD/USD regains 0.7000 on USD pullback, pre-RBA optimism

• AUD/USD bounces off 18-month low as traders brace for RBA amid quiet session.
• USD extends Friday’s pullback from July 2020 highs amid indecision over the pace of Fed’s rate hike in March.
• Bulls await clues for the RBA rate hike during 2022, Aussie Private Sector Credit rallied in December.
• NSW announced an AUD1bn package to battle covid, China data came in softer ahead of Lunar New Year holidays.

AUD/USD portrays a corrective pullback near an 18-month low, up 0.25% intraday around the daily high of 0.7018 heading into Monday’s European session.

In doing so, the Aussie pair cheers the US dollar’s weakness, as well as stimulus and upbeat second-tier data from Australia, to snap a three-day downtrend near a multi-day low.

During the weekend, Australia’s largest state by population announced relief measures for small and medium business owners. “The NSW government announced on Sunday an AUD1bn package to support small and medium-sized businesses through the Omicron wave. Payments of up to AUD5,000/week for businesses with revenue between AUD75,000 and AUD50m will start on 1 February,” said ANZ.

Also favoring the AUD/USD rebound is Australia’s December month Private Sector Credit for December, up 0.8% MoM versus 0.5% forecast and 0.9% prior. Furthermore, recently upbeat Inflation and jobs report keep RBA hawks hopeful with the ANZ saying, “(RBA) forecast for wages growth will likely point to a rate hike in the first half of 2023 as being its central case, but Lowe is expected to admit for the first time, in Tuesday’s statement and/or his speech the following day, that a move in 2022 is a possibility if wages growth comes through faster than forecast.”

It’s worth noting that doubts over the pace of the Fed’s rate hike in March and the downbeat Q4 US Employment Cost Index (ECI) could be held responsible for the softer USD. However, upbeat Treasury yields and hawkish comments from the US Fed officials keep AUD/USD bears hopeful.

Federal Reserve Bank of Minneapolis President Neel Kashkari said that he expects Fed to raise rates at the March meeting. Though, the policymaker emphasized the importance of incoming data while also saying, “Have to see how data plays out.”

On the same line was Raphael Bostic, President of the Fed’s Atlanta branch who reiterated his call for three Fed rate lifts in 2022 in an interview with the Financial Times (FT), with the first coming in March. “If the data say that things have evolved in a way that a 50 basis point move is required or [would] be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes sense, I’ll be comfortable with that,” said Fed’s Bostic per FT.

Amid these plays, the US Treasury yields print mild gains but stocks in Asia-Pacific and the US stock futures remain steady amid a sluggish start to the key week.

On a different page, China’s week-long holidays may test AUD/USD pair traders. It should be observed that Beijing’s official PMI data eased for January, per the preliminary readings flashed during the weekend.

That said, a light calendar on Monday will add to the momentum traders’ hardships during the pre-RBA cautious mood.

Technical analysis

Although an upside break of December 2021 low near 0.6995 favors the AUD/USD pair’s corrective pullback towards 0.7080, the August 2021 bottom surrounding 0.7105 will be crucial for the bulls.

Alternatively, a five-month-old descending trend line near 0.6930 will challenge the quote’s further downside.