AUD/USD: Recovery remains capped below 0.7400, China data dump eyed

AUD/USD fades Friday’s run-up, the strongest in a week, with a recent pullback to 0.7368 as Monday’s Asian session begins with no abnormality. The Aussie pair benefited from the broad US dollar weakness but bulls were challenged on covid jitters, geopolitical headlines and downbeat data at home.

The US Michigan Consumer Sentiment Index slumped to a 10-year low on Friday, raising fresh concerns over the health of the US economy even Fed policymakers tried to placate bears. The economic fears weighed on the US Dollar Index (DXY) and Treasury yields, both of which propelled the AUD/USD prices.

That said, the DXY dropped the most in 17 months after the confidence figures dropped below 81.2 market consensus to 70.2 in July. On the contrary, Australia’s HIA New Home Sales for July plunged 20.5% after rising 14.8% prior.

It’s worth noting that the Wall Street benchmarks refrained to respect the downbeat US 10-year Treasury yields and flashed minor gains.

Although US data raised concerns for the world’s largest economy and triggered the much-awaited pullback of the greenback gauge, the Aussie economy isn’t in a better shape due to the Delta covid variant. The virus figures are near early 2021 high and slower jabbing highlights the risk of darker days ahead. The Reserve Bank of Australia (RBA) accepted the economic challenges raised by the virus resurgence and stepped back from the previously hawkish tone.

On the other hand, the Fed policymakers keep their hopes of tapering in 2021 on the table amid expectations of further stimulus heating the economy.

Elsewhere, the Taliban’s quest for power in Afghanistan and the Sino-America tensions, not to forget Iran and North Korean tussles with American, also exert downside pressure on the AUD/USD prices due to its risk barometer status. Additionally, challenging the Aussie prices could be the deadlock of US President Joe Biden’s infrastructure spending plan and budget negotiations in the US houses as well as concerns, raised by Bloomberg, that supply chains are being battered by fresh covid surges.

Looking forward, AUD/USD traders will keep their eyes on the headlines figures from their largest customer China. July month’s Retail Sales and Industrial Production become more important this time amid the latest virus outbreak in the dragon nation. Forecasts suggest the Retail Sales ease from 12.1% to 11.5% whereas the Industrial Production may step back from 8.3% to 7.8% on yearly basis.

Should the incoming data match downbeat market forecasts, AUD/USD may trim the latest gains.

Technical analysis

A nearby symmetrical triangle formation between 0.7400 and 0.7315 restricts the AUD/USD pair’s short-term moves. However, downside becomes more expected as a convergence of 10-DMA and 21-DMA restricts immediate upside around 0.7365-70.