- AUD/USD seesaws in a small range under 0.7000 while still carrying the previous day’s pullback moves.
- Market’s risk-tone sours before the key FOMC, China’s CPI and PPI could offer immediate direction.
- Geopolitical tension in Korea and Libya, not to forget mild noises from China, offered background music to the risk reset.
AUD/USD extends the previous day’s range between 0.6955 and 0.6978 while declining to 0.6958 at the start of Wednesday’s Asian session. It’s worth mentioning that the Aussie pair dropped to the four-day low around 0.6900 the previous day, also snapping the eight-day winning streak, before bouncing off to portray the choppy trading below 0.7000 threshold.
Risk-off or a pause after the run and ahead of FOMC?
AUD/USD bulls took a breather on Tuesday as risk-on sentiment ran out of fuel ahead of the key data/events and also after a heavy rise in the last eight days. Markets turn cautious amid expectations of any hints to the Fed’s future policy moves. Also contributing to the risk aversion could be the enmity between Korean neighbors and geopolitical tension in Libya, coupled with the on-going US-China tussle.
A light economic calendar failed to offer any major moves to the pair. In Australia, we had mixed readings of the National Australia Bank’s (NAB) Business Confidence and Business Conditions data. On the other hand, upbeat prints of the US JOLTS job openings also fall short of providing any action.
Against this backdrop, Wall Street flashed mild losses whereas the US 10-year Treasury yields lost six basis points (bps) to 0.824% at the end of Tuesday’s trading session. Given the fading optimism in the markets, the AUD/USD also had to pedal the brake.
The pair traders currently await China’s May month inflation numbers, up for publishing at 01:30 GMT, for immediate direction ahead of the second-tier Aussie housing market data. However, the major attention will remain on the US session event, i.e. the US Federal Reserve’s monetary policy meeting. As per the market consensus, China’s headlines Consumer Price Index (CPI) could soften to 2.7% from 3.3% prior whereas the Producer Price Index (PPI) might drop further to -3.3% versus -3.1% previous readouts. It should also be noted that the Aussie Home Loans and Investment Lending for Homes are likely to improve in April. Furthermore, the Fed has many options to surprise the markets but might choose not to take the extreme measures considering the latest improvement in the US data.
Technical analysis
Considering the pair’s failure to sustain the upside break of 0.7000, the early-January low near 0.6850 and February month’s high of 0.6775 could return to the charts. However, the 200-day SMA level of 0.6664 might restrict the pair’s additional downside. On the contrary, a clear break above 0.7000 will have to cross the latest top near 0.7045 ahead of targeting July 2019 peak surrounding 0.7085.
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