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  • AUD/USD trades in the red below 0.7730 after rising for the third straight day on Tuesday. 
  • China’s PPI turns positive for the first time since January 2020. 

AUD/USD trades weak despite China reporting an increase in factory-gate prices for the first time in 12 months. 

The Producer Price Index, or factory-gate inflation, rose 0.3% year-on-year in January, ending an 11-month deflationary trend and pointing to a recovery in the world’s second-largest economy. The data, therefore, is positive for the commodity-sensitive Aussie dollar. 

So far, however, the bulls have remained on the sidelines. The AUD/USD pair trades below 0.7730, representing marginal losses on the day. 

While the PPI turned positive, the actual reading missed the expected growth of 0.4%. That could be the reason for the AUD’s muted reaction to the data. Further, the Consumer Price Index contracted 0.3% year-on-year in January, following December’s 0.2% growth. 

That said, the overall bias remains bullish, with markets expecting an aggressive US fiscal spending package. Friday’s dismal Nonfarm Payrolls report crystallized support for President Joe Biden’s $1.9 trillion spending plan. The USD has been losing ground across the board ever since. 

Meanwhile, supporting the AUD is the reflation trade and the rally in commodities. According to Financial Times, Wall Street banks are telling their clients to increase their exposure to raw materials, which are poised to benefit from a vaccine-driven global economic recovery, aided by fiscal stimulus. 

The currency pair may decline if the rising bond yields weigh over the stock markets, boosting demand for the greenback. 

Technical levels