AUD/USD stays depressed below 0.6550 ahead of Australia/US inflation clues

AUD/USD bears take a breather at the lowest level in two months, marked earlier in the week, as markets brace for the all-important Australia and US inflation clues during early Thursday morning in Canberra. In doing so, the Aussie pair licks its wounds near 0.6530 after declining in the last two consecutive days to refresh the 10-week low. It’s worth noting that the pre-data anxiety prods the momentum traders but the fears about China, Australia’s biggest customer, to exert downside pressure on the quote.

Markets remained mostly downbeat on Wednesday, despite the initial improvement, as fresh geopolitical and banking sector fears contrast with an intermediate relief to China. Even so, the traders’ rush towards the bonds could be witnessed and the same drowned the yields, as well as other riskier assets like equities, Gold and Antipodeans like AUD/USD.

Additionally, looming fears about the Aussie economy also weigh on the AUD/USD price. The S&P Global came out with its economic assessment of the Pacific major on Wednesday and said, “It is possible, but not certain, that the Australian economy can manage a ‘soft landing’ with inflation decreasing to the RBA’s target range.” “The key risk is that inflation in Australia is more sticky than expected and the RBA has to hike interest rates more strongly,” added the global rating and research house.

Further, the looming bankruptcy of the Dragon Nation’s biggest private real estate company, namely the Country Garden, as it has less than 30 days after the initial default on paying the bond coupons in early August, also weighs on the AUD/USD. Further, the recent China deflation and receding activity data join the nation’s geopolitical tussles with the US, and recently with Japan, to weigh on the economic outlook for China and weigh on the Aussie pair.

Even so, better-than-forecast China inflation data, despite marking the deflation, and the US Dollar Index (DXY) pullback from a one-month high can’t be cheered by the AUD/USD traders. An improvement in China’s Producer Price Index (PPI) for July superseded negative readings of the Consumer Price Index (CPI) for the said month. That said, CPI declines to -0.3% YoY versus -0.4% YoY expected and 0.0% prior whereas the PPI improves to -4.4% YoY compared to -4.1% YoY market forecasts and -5.4% previous readings.

Apart from China’s economic issues, Biden Administration also signaled relief to China technology companies and tamed the previous risk-off mood initially on Wednesday. “The US plans to target only those Chinese companies that get more than 50% of revenue from the sectors including quantum computing and artificial intelligence (AI),” said Bloomberg News.

Furthermore, the increasing odds of witnessing the US Federal Reserve’s (Fed) policy pivot challenges the US Dollar bulls and should have favored the Gold Price, but could not. That said, the CME Group FedWatch Tool shows that markets are pricing in an 86.5% chance that the Fed will pause interest rate hikes at its meeting in September. 

Looking ahead, Australia’s Consumer Inflation Expectations for August will offer immediate directions to the AUD/USD pair ahead of the US inflation data, per the Consumer Price Index (CPI) for July to gain clear directions. Market forecasts suggest an improvement in the headline CPI to 3.3% YoY versus 3.0% prior while the Core CPI, namely the CPI ex Food & Energy, may remain unchanged at 4.8%.

Technical analysis

A nine-month-old rising support line, around 0.6480 by the press time, challenges the AUD/USD bears amid the nearly oversold RSI conditions.