AUD/USD stays defensive around 0.6500 as RBA Minutes, China/US statistics loom

AUD/USD aptly portrays the market’s indecision ahead of a slew of top-tier data/events as it struggles to defend the late Monday’s corrective bounce off the Year-To-Date (YTD) low near 0.6490 during the early hours of Tuesday’s Asian session. In doing so, the Aussie pair also highlights the pessimism surrounding China, Australia’s biggest customer, before the key Reserve Bank of Australia (RBA) Monetary Policy Meeting Minutes, China Industrial Production and Retail Sales, as well as the US Retail Sales.

While the downbeat prints of the US inflation expectations allowed the Aussie bears to take a breather ahead of the key catalysts scheduled on the calendar, the latest chatters about China and cautious mood prior to data/events weigh on the AUD/USD price, holding it tight of late.

On Monday, the New York Fed’s one-year inflation expectations eased to 3.5% for July, down three points by falling to the lowest level since April 2021. New York Fed survey, however, also suggested confidence in positive labor market conditions and economic transition.

On the other hand, US Treasury Secretary Janet Yellen crossed wires, via Reuters, late Monday while citing the risks to the global economic developments from China’s slowdown, the Russia-Ukraine war and climate change-related disasters and their spillover effects.

The looming debt crisis in China and its contagion impact, especially amid the fears that economic recovery in the world’s biggest industrial player fades, weigh on the AUD/USD even if the easing inflation concerns allow market players to remain hopeful. Also challenging the market sentiment and the Aussie pair could be Russia’s firing of warning shots at a warship in the Black Sea and readiness to equip new nuclear submarines with hypersonic missiles.

It’s worth noting that a suspension of its bond trading by China’s Country Garden joins the non-receipt of the payments from a subsidiary of Chinese conglomerate Zhongzhi Enterprise Group to bolster the debt woes and weighed on sentiment on Monday.

Against this backdrop, the US Dollar Index (DXY) rose to its highest level since July 07 before retreating from 103.46, around 103.16 by the press time. In doing so, the greenback traces the firmer US Treasury bond yields as the 10-year Treasury bond yields rose to the highest level in nine months whereas the two-year counterpart also refreshed the monthly peak amid the market’s dumping of the Treasury bonds. It should be observed that such higher yields previously triggered recession woes and the risk-off sentiment which in turn favored the US Dollar due to its haven appeal and drowned the AUD/USD.

Moving on, RBA Minutes will be crucial to watch as the latest statements from the Aussie central bank tried convincing markets that they can and will lift the rates if needed but there was little acceptance of the statements. Following that, China’s Industrial Production and Retail Sales for July will be closely observed amid fears of losing economic momentum in the world’s second-biggest economy. Later in the day, the US Retail Sales for the said month will be more important as market players keep betting on the Fed’s policy pivot in September, which in turn may weigh on the US Dollar and trigger the AUD/USD recovery should the scheduled data weakens.

Technical analysis

Although the AUD/USD recovery remains elusive below June’s bottom of around 0.6600, a clear downside break of May’s monthly low, close to 0.6460, becomes necessary for the sellers to tighten their grips.