AUD/USD: Wavers above 0.7800 amid cautious sentiment on US Inflation day

AUD/USD wobbles around mid-0.7800s, after posting mild daily gains, as traders embrace for the key US Consumer Price Index on Wednesday. The Aussie pair begins the key day within the latest choppy range between 0.7835 and 0.7850, also comprising a brief move touching 7819 and 0.7857. Not only the pre-event cautious sentiment but a lack of major data and mixed response from the recent catalysts also test the quote’s moves.

All eyes on US inflation…

Although China’s headline inflation figures came in positive and Australia's budget also ignored the record deficit to promote economic recovery, not to forget strong US second-tier data, AUD/USD stayed lacklustre. The reason could be traced from the market belief that the economy is heating due to the heavy stimulus to battle the pandemic, which in turn could push the central banks to recall the easy money policy, versus the policymakers’ efforts to convince of inaction, for now.

Aussie budget for 2021-22 fiscal year, published on Tuesday, stayed on course to heavy spending, as expected. The important point was that the government expects inflation to cross 2.0% in 2022-23, which in turn suggests no challenges for the RBA, at least for now.

Before the budget, China published April’s Consumer Price Index (CPI) and Producer Price Index (PPI) data wherein the headline CPI eased from upbeat forecast but the factory-gate inflation, PPI, jumped to the highest since October 2017. Also on the data side could be the upbeat US JOLTS Job Openings and NIFB Business Optimism Index.

It should be noted that the technology sector keeps weighing on Wall Street and the overall market sentiment also turned sluggish amid mixed updates concerning the coronavirus (COVID-19) and vaccinations. The United Nations (UN) is holding a secret meeting over the Middle East tensions but nothing major arrived yet.

Looking forward, Australia’s Westpac Consumer Confidence for May, prior 6.2%, can offer immediate direction but traders are likely to witness less volatility in Asia as they fear for the US inflation figures, which they should. Given the upbeat US Treasury yields keeping markets cautiously positive, mildly upbeat inflation can do its work to balance the market and keep AUD/USD buyers hopeful.

“Fed’s inflation analysis proves accurate is, for the moment, irrelevant.  There is no CPI result that will prompt speculation on interest rates,” said FXStreet’s Joseph Trevisani.

Read: US Consumer Price Index April Preview: The two base effects of inflation

Technical analysis

AUD/USD remains inside the key 0.7820-7900 area, comprising late April tops and February levels respectively, with oscillators suggesting bullish momentum.