AUD/USD rebounds into upper 0.6800s in tandem with risk asset recovery, still down substantially on the week

• AUD/USD has rebounded into the upper 0.6800s, though remains on course for hefty on-the-week losses of over 2.5%.
• Risk asset weakness plus China lockdown/growth concerns that have weighed on industrial commodities hit the Aussie hard this week.
• Focus next week will be on Chinese data, the RBA minutes plus Australian Q1 WPI and labor market data.

The Aussie has staged a rebound on Friday in tandem with other recently hard-hit risk assets, though remains on course to post ugly on the week losses amid concerns about China lockdowns and amid associated recent downside in industrial commodity prices. AUD/USD is at present trading in the 0.6880s, higher by about 0.5% on the day after the pair hit its lowest levels since June 2020 on Thursday in the 0.6830 area.

However, the pair remains on course to end the week more than 2.5% lower, taking its losses in the last six weeks since it posted 2022 highs in the upper 0.7600s to more than 10%. Cities representing around 40% of China’s GDP, including Shanghai and Beijing, remain under some degree of Covid-19-related lockdown as of the end of this week, analysts said on Friday, warning in the same breath that upcoming Retail Sales and Industrial Production data this weekend will probably be ugly.

China also placed limits on unnecessary travel to and from the country this week. Against the backdrop of a weakening Chinese economy as it presses ahead with its zero-Covid-19 strategy and resultant harsh restrictions, it is probably too soon to bet on a rebound back into the 0.70s for AUD/USD.

A massive turnaround in the market’s appetite for risk might be enough to do it, but that also doesn’t seem likely, with the latest commentary from Fed Chair Jerome Powell on Thursday suggesting the Fed is as keen as ever to press ahead with monetary tightening in wake of this week’s hotter than forecast US inflation data. A rally back to the significant resistance area around 0.7000 (late 2021/early 2022 lows) likely remains a sell for many traders.

The minutes of the RBA’s last policy meeting where they surprised markets with a larger than expected 25 bps rate hike to 0.35% will be released on Monday, ahead of key Q1 Wage Price Index (WPI) data on Wednesday and April labour market figures on Thursday. While there will be plenty of focus on the outlook for RBA policy (more hikes expected) and the Australian economy (wage pressures likely building as the labour market tightens), this has not been a key driver of AUD/USD lately.