AUD/USD bears trying hard to keep reins below 0.7000, US/China inflation eyed

AUD/USD remains depressed around the intraday low near 0.6955 as sellers keep reins for the second consecutive day ahead of the key US inflation data. In addition to the US Consumer Price Index (CPI), headline inflation numbers from Australia’s key customer China also adds to the pre-data caution. Additionally, fears of economic slowdown and the hawkish Fed bets are extra catalysts that weigh on the Aussie pair during the early Asian session on Wednesday.

Market sentiment turned sour after the firmer US data joined Russia’s further tightening of energy supplies, which in turn weighed on the AUD/USD prices during the European session on Tuesday.

That said, US Nonfarm Productivity improved to -4.6% during the second quarter (Q2), -4.7% expected and -7.4% prior, whereas the Unit Labor Cost increased to 10.8% from 12.7% prior and 9.5% market consensus during the said period. On Tuesday, Russia reportedly suspended oil flows via the southern leg of the Druzhba pipeline, amid transit payment issues.

It’s worth noting that Fed's St. Louis president James Bullard said on Tuesday, per Reuters, that he wants rates at 4% by the end of the year. This joins recently firmer interest rate futures suggesting nearly 70% odds favoring the 75 basis points (bps) of a Fed rate hike in September.

Against this backdrop, the US 10-year Treasury yields regained upside momentum while closing the day around 2.779% while the Wall Street benchmarks also posted losses by the day’s end.

Earlier on Tuesday, National Australia Bank’s Business Conditions and Business Confidence data for July printed upbeat results as the former rose to 20, versus 15 market consensus and 13 prior. Further, Business Confidence matched 7 forecasts while rising past 1 prior. On the contrary, Australia’s Westpac Consumer Confidence Index for August eased to 81.2, below 83.8 prior. Also, China marked a 20.1% YoY gain in passenger car sales during July, per china auto industry body CPCA.

Looking forward, AUD/USD may witness an intermediate rebound should China’s CPI and Producer Price Index (PPI) data for July match upbeat forecasts. However, major attention will be given to the US CPI, expected to ease to 8.7% from 9.1% on YoY, as well as the CPI ex Food & Energy which is likely to rise from 5.9% to 6.1%. Given the hawkish expectations from the Core CPI, the US dollar may witness further upside in case of the firmer inflation print.

Also read: US CPI Preview: It is the hard core that counts, five scenarios for critical inflation data

Technical analysis

AUD/USD holds onto the pullback from a downward sloping resistance line from April 20, close to 0.7015 by the press time. The same joins the impending bear cross of the MACD and steady RSI to direct sellers towards the 50-DMA retest, around 0.6850 at the latest.