AUD/USD hovers around 0.7150 on Australia Day holiday, focus on Fed

• AUD/USD fades bounce off five-week low as pre-Fed anxiety escalates.
• Strong Aussie inflation helped buyers to battle the broad risk-off mood.
• Russia-Ukraine fears, IMF’s growth forecasts add to the bearish bias.
• Second-tier US data may entertain traders but all eyes on FOMC’s verdict amid March rate hike chatters.

AUD/USD fails to extend the previous day’s corrective pullback from a five-week low, retreats to 0.7150 during early Wednesday morning in Asia.

The risk barometer pair cheered upbeat Australia data the previous day to snap a two-day downtrend. However, fears of the hawkish Fed join geopolitical tensions and downbeat economic forecasts by the International Monetary Fund (IMF) to keep downside pressure on the quote.

That said, Australia's Q4 inflation rose past the Reserve Bank of Australia (RBA) forecasts to 3.5% YoY while the RBA Trimmed Mean CPI also crossed prior and market consensus to 1.0%. Given the already out strong employment data, Australia's inflation enabled AUD/USD traders to expect no major hurdle for the RBA to accept rate hike chances in 2022 versus previous rejections.

Also, the receding cases of Omicron in Australia and confidence in the medical system, as well as vaccine jabbing, added strength to the AUD/USD rebound.

However, the Fed hawks ignore softer US CB Consumer Confidence and Richmond Fed Manufacturing Index figures amid firmer US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data to weigh on AUD/USD. The inflation gauge rose for the third consecutive day on Tuesday after declining to the lowest since September on January 20.

It’s worth observing that the US, the UK and European Union (EU) are determined to levy economic sanctions on Russia if it invades Ukraine, which in turn keeps geopolitical fears on the table and test AUD/USD rebound. However, the latest updates suggest receding fears of an imminent war between Moscow and Kyiv.

Furthermore, the IMF No. 2 official Gita Gopinath conveyed downbeat economic forecasts the previous day as Omicron spreads. “We project global growth this year at 4.4%, 0.5 percentage point lower than previously forecast, mainly because of downgrades for the United States and China,” said IMF’s Gopinath per Reuters.

Against this backdrop, Wall Street closed in red and the US 10-year Treasury yields printed the least daily losses after a four-day downtrend. That said, prices of gold and oil gained.

Considering the off in Australian markets and the pre-Fed fears, AUD/USD may witness a lackluster day in Asia. However, fears of the hawkish Fed keep sellers hopeful.

Read: Federal Reserve Interest Rate Decision Preview: Inflation, Omicron and equities

Technical analysis

AUD/USD fades bounce off the 23.6% Fibonacci retracement of late June to December 2021 downside, around 0.7140, below the 50-DMA resistance level of 0.7182. That said, the further downside may halt around 0.7080 before challenging 2021 low near the 0.6995 mark.