AUD/USD struggles below 0.6700 as market sentiment dwindles on inflation, banking concerns

• AUD/USD remains sidelined after reversing from weekly high, up on weekly basis so far.
• Downbeat Aussie inflation data, fears of further rate hikes and geopolitical woes weigh on the risk-barometer pair.
• Light calendar in Asia favors traders to extend latest pullback ahead of Friday’s key US inflation clues.

AUD/USD justifies its risk-barometer status as the quote seesaws around 0.6680 amid a mixed start to Thursday’s trading, following a downbeat closing. That said, the Aussie pair’s previous losses could be linked to the US Dollar’s rebound and downbeat Australian inflation numbers while the latest inaction is likely due to a lack of a major catalyst, as well as mixed concerns about inflation and banking.

On Wednesday, Australia’s Monthly Consumer Price Index dropped to 6.8% YoY in February versus 7.2% expected and 7.4% prior. The reading followed downbeat Retail Sales and triggered a fall in the odds of witnessing another 0.25% rate hike from the Reserve Bank of Australia (RBA).

On the other hand, the US Dollar Index (DXY) marked the first daily gain in three even as the market sentiment improved and the US Treasury bond yields. The reason might be the month-end positioning, as well as the hawkish Fed comments, not to forget the recent fears emanating from China. Also likely to have favored the US Dollar could be the increase in the US inflation expectations, per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED).

The US blacklisting of Chinese companies and Beijing’s dislike of a meeting between the White House Speak and the Taiwan President can be considered the key catalysts to challenge the previously firmer sentiment and allow the US Dollar to snap a two-day downtrend.  

Elsewhere, Bloomberg came out with the news suggesting Fed Chair Jerome Powell showed forecasts for one more rate hike in 2023, which in turn pushed back talks of policy pivot and favor the US Dollar bulls. Though, Vice Chair for Supervision Michael Barr said, “We will be looking at incoming data, financial conditions to make a meeting-by-meeting judgment on rates.

At home, Australian Treasurer Jim Chalmers teased a shift in the RBA’s review proposals surrounding inflation while saying, “Some recommendations from an independent review of the RBA monetary policy decision-making and board make-up may require legislative changes to enact.”

Amid these plays, Wall Street closed with notable gains led by tech and bank stocks while the US Treasury bond yields eased.

Given the light calendar in the Asia-Pacific region, the AUD/USD pair may rely on the risk catalysts for clear directions. Among them, the inflation and banking headlines will be the key to follow.

Technical analysis

AUD/USD pair gradually recovers towards the 50-DMA hurdle of 0.6830, backed by the latest breakout of the 21-DMA, close to 0.6665 by the press time.