AUD/USD testing bearish commitments below 0.7020/50 ahead of key US events

AUD/USD is flat near 0.7100 in a quiet Asian start to Thursday following a more eventful Wednesday where local data made for heightened volatility with the pair rallying within a 160 pip range from a low of 0.7082 to a high of 0.7108. Nevertheless, the market has piped down as we await yet more critical data for the day ahead from the US economic calendar. 

US data is key for the day ahead

Following yesterday's inflation data that came in hotter than expected for the Australian economy, traders will be rolling up their sleeves as a slew of US numbers will hit the screens at the start of the day. The US Commerce Department is set to release its initial advance fourth-quarter Gross Domestic Product estimates at the same time that the nation's Core PCE prices will be due.

Analysts at TD Securities said that the data will likely show growth accelerating to a 0.3% MoM pace in December, though a 0.4% gain can't be discarded. ''The yoY rate likely slowed to 4.5%, suggesting prices continue to moderate but remain sticky at high levels,'' the analysts argued. In regards to the growth data, the analyst said, ''we also look for Gross Domestic Product growth to have stayed strong in Q4, posting another above-trend gain. Growth was likely supported by firm showings from the consumer and inventories.''

Ahead of this data, WIRP suggests a Federal Reserve interest rate hike of 25 bp on February 1 is fully priced in, with less than 5% odds of a larger 50 bp move.  Another 25 bp hike on March 22 is about 80% priced in, while one last 25 bp hike in Q2 is only 35% priced in. The sentiment has been a weight for the greenback, helping to support AUD/USD as it climbed towards fresh cycle highs made on the back of yesterday's CPI data. 

The December CPI inflation number rose 8.4% YoY dragging the Q4 headline CPI inflation rate up to 7.8% YoY from 7.3% YoY the previous quarter.  ''AUD/USD has subsequently regained the position of best-performing G10 currency in the year to date, just days after a softer than expected Australian labour report knocked it from the podium,'' analysts at Rabobank said.

''We continue to expect the AUD to perform well this year relative to a basket of G10 currencies.  That said, we look for a dip in the value of AUD/USD around the middle of the year,'' the analysts said. ''This is linked with our expectation that the market will price out expectations of a Fed rate cut before the end of 2023.''

AUD/USD technical analysis

The bulls are on track for meeting the cycle highs as per the 4-hour chart above, showing that the pair is climbing trendline support. However, should the bears move in to guard 0.7120/50, this dynamic support will start to look vulnerable and may encourage the bulls to capitulate as we head into the NY session's key data. If the trendline were to give out, in a sign of deceleration of the bullish cycle, then the bears will be looking for a break of 0.7080 and then 0.7060/50 to lock in the highs and tilt the bias in their favour for a significant rotation to the downside for the month end and into the Federal Reserve next week.