AUD/USD: Sour sentiment directs sellers towards 0.7200 ahead of China GDP

• AUD/USD grinds lower after declining the most in two weeks.
• Hawkish Fedspeak, weekend positioning triggered US Dollar rally the previous day.
• Virus woes, Fed rate hike concerns keep the risk barometer pressured ahead of the key China data.
• China Q4 2021 GDP, December Retail Sales, Industrial Production will be important for today, Australia employment eyed for the week.

AUD/USD stays defensive around 0.7215 during early Monday morning in Asia, following the heaviest daily fall in a fortnight.

The Aussie pair’s slump the previous day could be linked to the overall rally in the US dollar backed by the increased chatters over Fed rate hike, as well as the virus woes. It’s worth noting the market’s caution ahead of China’s key economic data.

The US dollar cheered the last dose of the Fed comments before the policymakers sealed the blackout period ahead of next week’s Federal Open Market Committee (FOMC) meeting. As a result, the US Dollar Index (DXY) gained the most in two weeks following its bounce off the lowest levels since November 10, around 95.16 at the latest.

Talking about the Fedspeak, Federal Reserve Bank of San Francisco President Mary Daly said that the latest Omicron wave will extend the period that inflation will remain high. Fed’s Daly also signaled that officials are “going to have to adjust policy”. On the same line, Federal Reserve Bank of New York President John Williams said Fed is approaching a decision to begin raising interest rates.

Further, US Retail Sales for December printed -1.9% MoM figure versus 0.0% expected and +0.2% prior. Further, the Michigan Consumer Sentiment Index for January also eased to 68.8 versus 70 forecasts and 70.6 previous readouts. The details also suggest that the highest inflation in 40 years weighs on consumer behavior.

It should be noted that Australia’s most populous state New South Wales (NSW) reported the biggest daily covid-linked deaths on Friday with 29 deaths, recently easing to 17 cases. Even so, Australian health authorities are confident NSW will see a plateau in its COVID-19 hospitalizations next week, as the state's numbers track "better than the best-case scenario" predicted, per ABC News.

Amid these plays, Equities also traded mixed while the US 10-yields rose 8.4 basis points (bps) to snap a four-day downtrend while closing at 1.793% on Friday.

Moving on, China’s headline economics will be crucial for the AUD/USD traders ahead of Thursday’s Australia jobs report. That said, China’s Q4 2021 GDP is expected to rise 1.1% QoQ versus 0.2% prior while the Retail Sales may ease to 3.7% versus 3.9% for December. Additionally, Industrial Production for the said month is likely to have softened to 3.6% versus 3.8% YoY.

Given the expectedly mixed data from China, AUD/USD prices are likely to remain at the mercy of the risk catalysts. Among them, Omicron and Fed rate-hike chatters are the key, which in turn could keep the pair pressured.

Technical analysis

AUD/USD remains pressured inside a short-term bullish chart pattern but below the key moving averages. Given the sluggish oscillators, the quote is likely to remain inside a 1.5 month-long bullish channel formation.

However, a convergence of the 20-DMA and 50-DMA restricts the Aussie pair’s immediate downside around 0.7210, a break of which will direct the AUD/USD bears towards the stated channel’s support line, close to 0.7150 at the latest.

Meanwhile, the 100-DMA level of 0.7285 and the channel’s upper line around 0.7330 restrict short-term advances of the AUD/USD prices.