AUD/USD looks to regain 0.6800 as US Dollar retreats ahead of inflation data, Fed

AUD/USD renews its intraday high around 0.6760 as it consolidates the previous day’s heavy losses during early Tuesday. In doing so, the Aussie pair also cheers the US Dollar’s weakness ahead of November's key US Consumer Price Index (CPI).

That said, the quote snapped a three-day uptrend the previous day as the US Dollar benefited from firmer Treasury bond yields and Friday’s robust data suggesting upbeat prints of the US CPI.

Even so, mixed prints of the US inflation expectations from the Federal Reserve (Fed) banks of New York and St. Louis seem to lure the bearish bias surrounding the US CPI and favor the AUD/USD bulls of late. On Monday, the New York Federal Reserve’s (Fed) Survey of Consumer Inflation Expectations Survey stated that the 1-year ahead inflation expectations slumped to their lowest level since 2021 and marked the biggest month-to-month decline in November on record. The short-term inflation precursor from the NY Fed contrasts with the upbeat inflation expectations for the 5-year and 10-year reported by the St. Louis Federal Reserve (FRED) data. That said, the latest prints of the 5-year and 10-year inflation expectations portray a rebound to 2.28% and 2.35%, respectively.

It’s worth noting that the last week’s downbeat prints of the United States Producer Price Index (PPI) also hinted at softer US inflation. Still, the University of Michigan’s (UoM) Consumer Sentiment Index, the US ISM Services PMI and inflation expectations from the UoM Survey suggested firmer prints of the US CPI.

Besides the mixed forecasts for US inflation, optimism surrounding China’s gradual removal of the Zero-Covid policy also helps the AUD/USD buyers. That said, the government of Shanghai city announced on Monday that they would deem all districts as "not at risk of Covid" from Tuesday, December 13, as reported by Reuters. Earlier Monday, Chinese officials announced they would take the application to track coronavirus cases offline later this week.

On the contrary, downbeat Australian statistics, fears of the Sino-America tussles and hawkish hopes from the Fed challenge the AUD/USD bulls.

Earlier in the day, National Australia Bank’s (NAB) Business Confidence gauge slumped to -4.0 for November versus 5.0 expected and 0.0 prior. Further, the NAB Business Conditions also eased to 20.0 while matching market forecasts, compared to 22.0 prior. Elsewhere, Chinese Foreign Ministry spokesman Wang Wenbin conveyed dislike for the US sanctions on two of their diplomats on Monday. “These illegal sanctions severely affected Sino-American relations,” Wang said, per Reuters. Elsewhere, Russian President Vladimir Putin’s rejection to supply oil to countries respecting the Europe-led price cap also raised the market’s fears and exerted downside pressure on the AUD/USD price.

Amid these plays, the US 10-year and two-year Treasury bond yields print the first daily loss in four, around 3.59% and 4.36% in that order, while the S&P 500 Futures print mild losses near 4,022 despite strong Wall Street close on Monday. It should be noted that the oil price improved, and the US Dollar Index (DXY) eased, but the traders remain cautious overall.

Moving on, AUD/USD traders could witness lackluster markets ahead of the US inflation release. It should be observed that US CPI for November is likely to ease to 7.3% YoY, versus the 7.7% prior figure, while the monthly CPI may retreat to 0.3% compared to 0.4% previous readings. It should be noted that the CPI ex Food & Energy appears to be the key and is expected to be unchanged at 0.3% MoM.

Technical analysis

Despite the latest rebound, AUD/USD remains indecisive as it stays between the 21-DMA and the one-week-old resistance line, respectively, near 0.6730 and 0.6795.