AUD/USD: Retraces pullback from multi-month top above 0.7400 amid mixed sentiment

• AUD/USD bounces off 0.7422 following its declines from fresh high since July 2018.
• US stimulus headlines battle increasing virus infection, vaccine updates.
• Brexit worries, Aussie-China tussle and light calendar recently weigh on the risks.
• Australian Consumer Inflation Expectations, RBA Bulletin to decorate the calendar.

AUD/USD regains upside momentum with its latest bounce towards 0.7450, currently at 0.7442, during the start of Thursday’s Asian session. The pair earlier surged to the highest since July 2018 before taking a U-turn from 0.7485. While optimism concerning the US stimulus and the coronavirus (COVID-19) vaccine managed to please the bulls previously, uncertainty over the details of the aid package, Brexit and the latest covid figures weigh on the mood off-late.

Bulls turn cautious…

Be it the fears of a full-fledge Canberra-Beijing tussle or a no-deal Brexit, not to mention the hike in the virus figures from the US before the vaccine arrives, everything pulled the market optimism backward on Wednesday. Also weighing on the risks could be the lack of agreement among the US Senate members over the much-awaited COVID-19 stimulus even as package size is likely around $900 billion.

Amid the calls of the nearness to the much-awaited US stimulus and hopes that the developed economy will soon overcome the pandemic, due to the vaccine arrival, AUD/USD bulls could ignore the first contraction in the Chinese Consumer Price Index (CPI) since late-2009. The pair buyers also managed to pay a little heed to the South China Morning Post (SCMP) news suggesting no renewal of the Aussie-China five year trade pact amid the latest tussles.

However, the bullish sentiment faded after the aussie hit a fresh high in nearly 2.5 years as the US policymakers struggle over the details of the stimulus while traders turn cautious as UK PM Boris Johnson and the European Union (EU) President Ursula von der Leyen talks over Brexit in Brussels. Further, the pre-ECB sentiment and the wait for the US Food and Drug Administration’s (FDA) approval of Pfizer’s covid vaccine also helped the countertrend traders before stepping back from 0.7422.

Against this backdrop, Wall Street benchmarks dropped with Nasdaq having the worst day since October 30 after refreshing the record top. Though, the US 10-year Treasury yields rose 2.6 basis points to 0.939% by press time.

Looking forward, Australia’s Consumer Inflation Expectations for December, prior 3.5%, can offer immediate direction while the pair traders await more signs of no negative rates and economic optimism in the RBA’s Bulletin to keep the bullish view. It should, however, be noted that the risk catalysts like virus updates, Brexit news and tension with China, not to forget vaccine and the US stimulus headlines, will be the key to watch.

Technical analysis

AUD/USD buyers’ ability to defend 0.7400, comprising 10-day SMA, suggests the pair’s momentum strength towards challenging the lows marked in December and November 2017, respectively around the 0.7500 threshold and 0.7530. Meanwhile, a downside break of the 0.7400 immediate support can recall the 0.7345/40 support area, which includes the highs printed in mid-September and early in November.