AUD/USD defends 0.7000, braces for RBA inaction, PBOC’s RRR cut amid firmer yields

• AUD/USD consolidates recent losses around yearly low, pauses five-week downtrend.
• Yields improve, S&P 500 futures rise amid hopes of further easy money, Omicron cure.
• China’s Premier promised RRR cut, RBA can cite softer inflation, coronavirus woes to maintain status-quo.
• Second-tier Aussie data came in positive for November, Australia Treasurer Frydenberg stays optimistic.

AUD/USD prints mild gains while taking rounds to 0.7010-15 during Monday’s Asia session, licking its wounds following the heaviest daily fall since early May.

While the Fed-linked chatters dragged the Aussie pair to fresh 2021 lows, optimism concerning Australia’s economy, the hope of the People’s Bank of China’s (PBOC) rate cut and preparations for tomorrow’s Reserve Bank of Australia (RBA) meeting seem to favor bulls of late. On the same line could be the cautious optimism in the market.

Ahead of the RBA meeting, Bloomberg came out with the survey stating, “Australia’s central bank is likely to highlight the interval between building economic momentum and faster price gains as well as renewed risks from a new coronavirus variant in its final meeting of the year.”

On the other hand, the ANZ said, “China’s Premier Keqiang promised a Reserve Requirement Ratio (RRR) cut to the International Monetary Fund (IMF), without specifying the date, – on the same day Evergrande filed a warning of default risk and possible restructuring.”

Read: China's 10y govt yield drops 5bps to 2.85% amid bets on RRR cut

In addition to the RBA and the PBOC chatters, upbeat prints of the second-tier data at home also favored AUD/USD prices. That said, Australias’ TD Securities Inflation for November rose past 0.2% to 0.3% whereas the ANZ Job Advertisements came in at 7.4% versus 6.2% prior for the stated month.

Additionally, hopes of finding a cure to the South African covid variant, dubbed as Omicron, joins chatters that the same is less dangerous than initially feared also favored the market sentiment and the AUD/USD prices. After initially hitting Europe and the UK, the virus strain tightens its grip towards reaching the key global nations like the US and China. It should be noted, however, that global scientists are optimistic over the cure. Recently, US top Medical Officer Anthony Fauci backed Pfizer’s drug to be effective against Omicron while the news of chewing gum to stop the virus spread and the UK’s push for treatment also keeps traders hopeful.

Furthermore, comments from Australia’s Treasurer Josh Frydenberg were positive for the AUD/USD prices. The policymaker is likely to revise the Aussie GDP forecast for 2022 during the mid-year budget update, per Reuters.

It’s worth noting that the quote dropped heavily on Friday as the US dollar shrugged off a surprise drop in the US Nonfarm Payrolls (NFP) while trading the improvement in the Unemployment Rate. Also keeping the Fed rate hike expectations on the front were comments from St Louis Fed President James Bullard who is also a voting member in 2022. The policymakers said, “Could look at raising interest rates before completing the taper.”

Amid these plays, S&P 500 futures print 0.45% intraday gains and the US 10-year Treasury yields gained 4.2 basis points (bps) to 1.378% by the press time. Wall Street benchmarks closed negative while the US 10-year Treasury yields dropped around 10 basis points (bps) to 1.35%, the lowest since late September, on Friday.

Moving on, risk catalysts and the pre-RBA sentiment may drive AUD/USD prices amid a light calendar.

Technical analysis

Having successfully broken August 2021 low, AUD/USD sellers attack November 2020 low that holds the key for the pair’s further declines toward 50% retracement of the 2018-20 south-run, around 0.6820. MACD conditions are the most bearish in two months as 100-DMA teases a bear cross under 200-DMA, suggesting further weakness of the Aussie pair.

However, the RSI conditions are nearly oversold and hence corrective pullback can’t be ruled out as well. The same highlights 61.8% Fibonacci level of 0.7130 and convergence of the stated key weekly moving averages, near 0.7190-7200, as short-term targets to watch during the quote’s recovery.