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  • AUD/USD fails to cheer US dollar weakness, remains sideline despite recent recovery.
  • Market sentiment dwindles as Fed officials try to cool down tapering fears, term inflation risk as transitory.
  • US 10-year Treasury yields decline the most in a week, DXY tests fresh low since January.
  • Aussie Westpac Leading Index, inflation chatters will provide fresh impetus.

AUD/USD extends its sideways grind around 0.7750, picking up bids of late, amid the early Wednesday morning in Asia. The Aussie pair struggled to deviate from the stated level the previous day amid mixed clues and hence traders are looking for today’s second-tier data from home for clear direction, howsoever small it may be.

Bulls & bears jostle over inflation, tapering”¦

Tuesday turned out to be another downbeat day for the US dollar index (DXY) but the market reaction was timid as the Federal Reserve (Fed) officials couldn’t convince traders that the inflation fears are transitory. A slew of Fed policymakers, including Vice Chair Richard Clarida, tried soothing the reflation fears but couldn’t come to a single page, like always, which in turn seems to have magnified the market’s indecision and weighed down the risk-on mood even.

It’s worth mentioning that the recovery in the coronavirus (COVID-19) conditions, steady vaccinations and gold’s run-up also tried to please the bulls, but couldn’t.

Talking about the economics, US New Home Sales and Richmond Fed Manufacturing Index flashed mixed signals for April and May respectively whereas CB Consumer Confidence Index for May also eased, offering extra obstacles to the market moves.

Against this backdrop, Wall Street benchmarks closed mildly offered and the US 10-year Treasury yield drops 4.8 basis points (bps) to 1.56%, the lowest in a month, by the end of Tuesday’s North American trading session.

Although inflation and tapering are the key catalysts, Australia’s Westpac Leading Index figures for April, prior 0.38% MoM, will be the key to watch. Westpac said, “The six-month annualized growth rate in the  Westpac-MI Leading Index  lifted from 3.0% in February to 3.3% in March, consistent with comfortably above-trend growth continuing through the remainder of 2021. The April reading is likely to show something similar although there has been a mixed bag of component updates over the last month.,” ahead of the release.

Technical analysis

AUD/USD needs to break the 0.7700-7820 trading range to portray any decisive moves. Meanwhile, a clearance of a two-week-old descending trend line, around 0.7750 keeps short-term buyers hopeful.