AUD/USD dribbles around key support below 0.6900, China PMI, US PCE inflation eyed

AUD/USD holds onto the previous day’s bounce off important support while taking rounds to 0.6870 during Thursday’s inactive early Asian session. In addition to defending the corrective pullback, the Aussie pair also portrays the market’s anxiety ahead of important data from a major customer China.

Alike other major currency pairs, the AUD/USD also dropped versus the US dollar on Wednesday, printing a three-day south-run, amid a broad risk-off mood due to the fears of recession. In doing so, the quote failed to cheer firmer-than-expected Aussie Retail Sales for May, to 0.9% versus 0.4% market forecasts and 0.9% previous readouts.

Market sentiment worsened as traders fear that the central bankers’ aggression will lead to a slowing of economic growth. Adding to the sour sentiment were geopolitical and trade-linked fears surrounding Russia and China. While the West remains determined to levy more sanctions on Moscow, chatters over China’s likely failure to meet the optimistic growth target also gained attention and weighed on the AUD/USD prices, due to its risk barometer status.

That said, Fed Chairman Jerome Powell mostly repeated his latest pledge to battle inflation with readiness to announce another 0.75% rate hike if needed. The Fed Boss also praised the US economic strength and helped the US dollar to remain firmer.

Talking about data, the final readings of the Q1 US Gross Domestic Product Annualized dropped to -1.6% versus the initial forecasts of -1.5%. The Personal Consumption Expenditure (PCE) Prices, on the other hand, rose more than 7.0% expected and prior readings to 7.1% during the stated period.

Amid these plays, Wall Street closed mixed and the US Treasury yields dropped for the second day. It’s worth noting that the S&P 500 Futures remain downbeat and the US bond coupons also stay pressured by the press time.

To conclude, AUD/USD traders await China’s NBS Manufacturing PMI and Non-Manufacturing PMI for June amid fears of economic slowdown in the largest trading partner. A softer reading may weigh on the quote. Forecasts suggest the headline NBS Manufacturing PMI rise to 50.5 from 49.6 whereas the Non-Manufacturing PMI could also jump to 52.5 versus 47.8 prior.

Following that, the Fed’s preferred version of inflation, namely the Core PCE Price Index, for May, expected to rise to 0.4% from 0.3% MoM, will be crucial to watch for clear directions.

Also read: US PCE Inflation May Preview: Inflation becomes moot

Technical analysis

Given the AUD/USD pair’s sustained trading below a two-week-old descending resistance line and the 10-DMA, not to forget the bearish MACD signals, the quote is likely to break the adjacent key support line from May 12, near 0.6860. The same could direct the sellers towards the yearly low near 0.6830 and then to the 0.6800 round figure.

On the contrary, the 10-DMA and aforementioned resistance line, respectively around 0.6920 and 0.6935, guard the short-term recovery of the quote.