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  • AUD/USD keeps losses from one-week high of 0.7340, signals second week of losses.
  • US dollar quickly shrugged off ECB-led losses as equities dropped after further drama on stimulus package.
  • Brexit pessimism, virus woes and Sino-American tussle offer background music to the bears.
  • US CPI becomes the key data to watch, risk factors stay on the driver’s seat.

AUD/USD remains on the back foot near the late-US session lows while taking rounds to 0.7260 as Asian traders set their screens for Friday. The aussie pair had a volatile day of initially refreshing the weekly high, mainly on the US dollar’s pullback, before recalling the bears as risk dwindled. Markets are currently waiting for a firm direction but may have to disappoint amid a light calendar.

King dollar keeps the throne…

Despite the European Central Bank’s (ECB) effort to placate the bears, via upward revision to the short-term economic forecast, the US dollar index (DXY) defied Wednesday’s pause to a six-day winning streak on Thursday. In doing so, the greenback gauge ignored downbeat Jobless data but paid respect to the Producer Price Index (PPI) numbers.

On the other hand, weakness in the Aussie Consumer Inflation Expectations also exerted downside pressure on the quote but was mostly ignored during the previous day’s Asian session.

Traders may end-up arguing over the American policymakers yet another failure to pass the fiscal package and the recent warning by the US health official Dr. Anthony Fauci as the major risk catalysts from America. Elsewhere, the European Union’s (EU) threat to levy sanctions on the UK, if it stays on the course to wreck the Brexit bill, joined the US-China tension to weigh the risk-tone sentiment. Further, the surge in the coronavirus (COVID-19) cases in India and the return of strict social distancing measures in the UK and Indonesia also had a negative impact on the market’s mood.

Against this backdrop, Wall Street marked another day in the red while the US 10-year Treasury yields dropped 2.1 basis points (bps) to 0.682% by the end of Thursday’s North American session.

Moving on, traders may struggle for clues as no major data/events are scheduled for publishing in Asia. As a result, the risk catalysts are the only hope, which suggests further downside of the AUD/USD prices, for traders.

However, the US Consumer Price Index (CPI) for August becomes the key data to watch after PPI’s recovery. Forecasts suggest 1.2% YoY figures versus 1.0% prior. Considering this, TD Securities says, “We advise again extrapolating, but our +0.3% forecast for the core CPI in August is above the 0.2% consensus. We are allowing for a temporary COVID-related surge in used vehicle prices—demand for vehicles has been boosted by individuals trying to avoid mass transit—and further reversal of some of the recent plunge in apparel prices. We are assuming only a partial offset from COVID-related weakening in education prices, and ongoing slowing in rents. Through the COVID-related volatility, we believe the trend is weakening, led by rents. We estimate core prices remained at 1.6% y/y in August, up from 1.2% in June but down from 2.4% in February.”

Technical analysis

10-day SMA, currently around 0.7293, has been restricting the pair’s upside since last Friday while an ascending trend line from August 03, at 0.7200 now, becomes crucial support.