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  • AUD/USD drops over 10-pips as RBA’s Lowe indirectly cites inflation fears.
  • Risk-on mood, US dollar weakness back bulls before US fiscal stimulus announcement, upbeat data at home also favored upside.
  • Aussie Westpac Consumer Confidence, China inflation figures for February decorate calendar, US relief package news becomes the key.

AUD/USD fades Tuesday’s recovery moves as sellers attack 0.7700, currently around 0.7705 during the initial Asian session on Wednesday. In doing so, the aussie pair reacts to the downbeat comments from RBA’s Governor Philip Lowe to trim the previous day’s gains earned through the US dollar weakness and upbeat market sentiment, not to forget declining US Treasury yields.

Although RBA’s Lowe seemed unsure of extending the Aussie central bank’s bond-buying scheme from April 2024 bond to November 2024, his comments like, “RBA doesn’t share the same view as market on rate hike timing,” portray reflation fears. The same seemed to have weighed on the AUD/USD prices that earlier cheered the US dollar’s pullback from the multi-day top and risk-on mood.

The US dollar index (DXY) dropped back below 92.00 after rising to 92.50, the highest since November 24, 2020, the previous day as global markets turned optimistic over the US coronavirus (COVID-19) fiscal stimulus, anticipated around $1.9 trillion. The mood also benefited the Wall Street benchmarks with Nasdaq rising 4.0%, closing with 3.69% gains, by the press time. However, the US 10-year Treasury yield weakened six basis points (bps) to revisit the 1.53% level by the end of Tuesday’s North American trading.

It should be noted that welcome economics at home also played their roles in favoring the AUD/USD upside on Tuesday. To state the major, the February NAB’s Business Confidence came in at 16 above the previous 10, while NAB’s Business Conditions improved from 7 in January to 10.

Looking forward, global markets await US stimulus announcement as the House votes on the much-awaited bill. However, Australia’s Westpac Consumer Confidence for March, expected 1.8% versus 1.9% prior, ahead of February’s Consumer Price Index (CPI) and Producer Price Index (PPI) data from China, will offer immediate direction.

Ahead of the day, Westpac said, “Local virus-related developments have mostly been positive over the month, brief lockdowns in Perth and Victoria having been lifted and vaccinations commencing. Developments have also been positive around the economy, with the December national accounts recording a robust 3.1% gain, labor markets continuing to surprise to the upside and a strong pick-up now clearly evident across housing markets. The CPI is expected to remain at -0.3%yr in February, with slow services price growth the major drag. Meanwhile, the February PPI is expected to jump sharply to 1.5%yr, likely a function of rising commodity and oil prices.”

Technical analysis

In addition to the bounce off an ascending support line from December 21, currently around 0.7645, but an upside break of a two-week-old falling trend line, at 0.7675 now, also favors AUD/USD buyers to battle 50-day SMA level near 0.7740.