AUD/USD grinds past 0.6900 amid mixed China updates, hawkish Fed talks

• AUD/USD stays depressed after reversing from weekly high the previous day.
• Fed policymakers, US diplomats highlight inflation fears to justify higher rates.
• Easing US-China fears contrasts with Australia’s drive to remove Chinese cameras from government offices and probe sentiment.
• US Dollar grinds higher even as yields remain pressured.

AUD/USD struggles push back the bearish bias during Thursday’s Asian session, despite the latest inaction around 0.6930-35, as mixed fundamentals join a light calendar. That said, the hawkish concerns surrounding the US Federal Reserve (Fed) keep the US Dollar firmer while mixed headlines about China probe Aussie traders of late.

Strong US employment and activity data allowed the Fed officials, including Chairman Jerome Powell, to recall inflation woes and propel the US Dollar Index (DXY), following the DXY’s week-start retreat from the monthly peak. The same joins an absence of major positives from elsewhere to probe the AUD/USD buyers.

Fed Governor Christopher Waller teased a long fight with a 2.0% inflation target by citing expectations of tighter monetary policy for longer than expected. New York Federal Reserve President John Williams was almost on the same line while saying that the labor market is still very strong and noted that they have more work to do on rates, adding data will determine the path of rate hikes. Fed Governor Lisa Cook said that the central bank remains focused on restoring price stability, as inflation is still running too high. She added that they would need a restrictive monetary policy for some time.

In addition to the Fed officials, US diplomats were also highlighting concerns that defend the higher Fed rates and weigh on AUD/USD. Among them, US Treasury Secretary Janet Yellen mentioned, “While inflation remained elevated, there were encouraging signs that supply-demand mismatches were easing in many sectors of the economy.” Elsewhere, US President Joe Biden said during a PBS interview that there will be no US recession in 2023 or 2024.

Alternatively, easing fears surrounding the US and China defend the AUD/USD buyers. However, the Aussie-China tensions are likely to return to the table and probe the pair’s run-up.

Recently, the ex-Fed Chair Jannet Yellen mentioned that it was important to improve communications with Chinese counterparts on economic issues, which in turn eased the US-China tension which escalated on the weekend news of the US shooting a Chinese balloon and terming it a spy. Further, US President Joe Biden also tried placating the Sino-American tussle as he said, “We intend to compete completely with China but we are not seeking conflict, as that has been the case so far.”

On the other hand, The Guardian mentioned that the federal government has committed to removing Chinese-made security cameras at government buildings across Australia, admitting there is a potential security problem that needs to be addressed.

Against this backdrop, the US 10-year Treasury bond yields reversed from a one-month high to snap a three-day uptrend on Wednesday, pressured around 3.62% at the latest. The same help S&P 500 Futures to ignore Wall Street’s downbeat closing and remain mildly bid as of late.

Looking forward, a light calendar apart from the US Weekly Initial Jobless Claims seems to challenge the AUD/USD momentum traders.

Technical analysis

A convergence of the 21 and 10-DMA restricts short-term AUD/USD upside near the 0.7000 psychological magnet. However, downside remains elusive unless the quote provides a daily closing below the 50-DMA support of 0.6865.