AUD/USD grinds above 0.6500 on hawkish RBA’s Lowe ahead of China PMI, Aussie inflation

AUD/USD picks up bids to pare the previous day’s losses around 0.6520, after snapping a two-day uptrend, as Reserve Bank of Australia (RBA) Governor Philip Lowe sounds hawkish on early Wednesday in Asia.

That said, RBA Governor Lowe said, “(He) will do what is necessary to make sure inflation comes back to target range in next few years.”

Also read: RBA’s Lowe: Nominal wage growth has not been source of inflation

Apart from hawkish testimony from RBA’s Lowe, the market’s consolidation ahead of the top-tier data from Australia and China, as well as the US, joins the preparations for the US Senate’s voting on the debt ceiling agreement to favor the AUD/USD rebound.

It should be noted that the US Dollar’s struggle ahead of the key data/events also exerts downside pressure on the AUD/USD price despite the latest corrective bounce off the weekly low. That said, the greenback’s latest weakness could be linked to the market’s fears that the US policymakers will turn down the agreement to tame the US default in Congress despite looming system failure on June 05. Adding strength to the DXY’s retreat is the mixed US data and month-end positioning. With this, the US Dollar Index (DXY) rose to the highest levels since mid-March on Tuesday before snapping a five-day uptrend, as well as positing the biggest daily loss since April 19, while closing the North American trading session around 104.05.

It’s worth observing that the US Conference Board's (CB) Consumer Confidence Index edged lower to 102.30 for May from an upwardly revised 103.70 prior marked in April (from 101.30). Additional details of the survey report mentioned that the one-year consumer inflation expectations ticked down to 6.1% in May from 6.2% in April. Further, the Dallas Fed Manufacturing Business Index for May dropped to -29.1 from -23.4 and versus -19.6 market expectations.

Despite the mixed data, Richmond Fed President Thomas Barkin said that he is seeing evidence that interest rate hikes are curbing demand, which in turn prods the AUD/USD buyers ahead of an important day.

Elsewhere, US Republicans like Chip Roy and Ralph Norman showed readiness to turn down the US debt ceiling agreement but softer US data put a floor under the risk-off mood.

Against this backdrop, Wall Street closed mixed but the US Treasury bond yields remained pressured.

Looking ahead, Australia’s Monthly Consumer Price Index (CPI) for May and China's NBS Manufacturing PMI, as well as Non-Manufacturing PMI, will be the key to watching for clear AUD/USD directions. That said, a positive outcome of the Senate’s voting on the measures to avoid US default, which is very much likely, can keep the greenback buyers in the driver’s seat. Also, the US JOLTS Job Openings for April are likely to ease and hence a positive surprise from the same may strengthen the hawkish Fed bets and can recall US Dollar bulls. It’s worth noting, however, that any clear negatives from the US Congress won’t be taken lightly.

Technical analysis

AUD/USD rebound remains elusive unless crossing a three-week-old descending resistance line, around 0.6560 by the press time.