AUD/USD: Corrective pullback eyes to regain 0.6900 ahead of China data, Fed

• AUD/USD extends rebound from monthly low, snaps five-day downtrend.
• Market’s consolidation ahead of Fed appears to underpin the recovery moves.
• Chatters over inflation keep exerting more pressure on the Fed, covid, Taiwan are extra catalysts testing bulls.
• Westpac Consumer Confidence Index, China’s monthly Industrial Production and Retail Sales can direct immediate moves.

AUD/USD picks up bids to pare the recent losses around a five-week low, refreshing intraday high to 0.6890 during the mid-Asian session on Wednesday. In doing so, the Aussie pair portrays the market’s positioning ahead of the key Federal Open Market Committee (FOMC) while also cheering mildly bid US stock futures.

That said, US diplomats seem to ignore the recent mixed factory-gate inflation data while indirectly pushing the Fed towards aggressive rate hikes and balance-sheet normalization. The same join updates surrounding Taiwan and China’s covid conditions to weigh on the market sentiment, which in turn challenge AUD/USD bulls due to the pair’s risk barometer status.

White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.

Elsewhere, Beijing reported the highest coronavirus cases in three weeks the previous day and called for more activity restrictions. Shanghai, on the other hand, marked ease into the COVID-19 cases but keeps the recently announced limits to curb the virus from spreading too fast.

Furthermore, the US Producer Price Index (PPI) matched 0.8% MoM forecasts for May, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

Comments from Goldman Sachs (GS) Chief Australia Economist Andrew Boak also helped the AUD/USD prices to recover. “We now expect the RBA to raise rates by 50bps in August and September, up from 25bps previously,” said Boak from GS.

Amid these plays, the US stock futures remain sluggish around the lowest levels since early 2021, up 0.20% intraday of late, while the Treasury bond yields dribble at the 11-year top near 3.5%, around 3.475% at the latest.

Looking forward, Australia’s Westpac Consumer Confidence Index for June, expected -0.7% versus -5.6% prior, could offer immediate directions to the AUD/USD pair ahead of China’s monthly prints of Industrial Production and Retail Sales for May. Though, major attention will be given to the Fed’s ability to tame inflation and not disappoint the markets as it walks on a knife’s edge.

Read: Fed June Preview: In the world we live in, a 50 bps hike is a dovish surprise

Technical analysis

Bears need a clear downside break of the yearly low surrounding 0.6830, marked in May, to aim for a June 2020 low near 0.6775. Alternatively, recovery moves need validation from 2021 bottom near 0.7000.