AUD/USD stays defensive above 0.6900 ahead of China inflation, RBA SoMP

• AUD/USD picks up bids to reverse late Thursday’s losses from weekly top.
• US Dollar initially fell on downbeat US data, Fed speak before watching yield curve inversion to recover from one-week low.
• Market sentiment remains dicey despite upbeat headlines surrounding China.
• China inflation, RBA Statement of Monetary Policy eyed ahead of US consumer-centric data.

AUD/USD licks its wounds around 0.6930-40, following an 80-pip downturn in the last few hours, as the Aussie pair traders brace for the Reserve Bank of Australia’s (RBA) Statement of Monetary Policy (SoMP) during early Friday. In addition to the RBA’s SoMP, the preliminary readings of US consumer-centric numbers for February like the Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations also decorate the calendar and allowed the quote to pare recent losses. Furthermore, China’s headlines Consumer Price Index (CPI) and Producer Price Index (PPI) for January will also be important for immediate directions.

The Aussie pair initially rose to the weekly high on upbeat China-linked headlines and the US Dollar’s downbeat performance due to the softer US data and dovish Fedspeak. However, the market’s fears of recession, backed by the yield-curve inversion and mixed mood ahead of the top-tier data/events seemed to have triggered the AUD/USD downturn ahead of the latest consolidation.

US Weekly Initial Jobless Claims rose to 196K versus 190K expected and 183K prior. “The advance number for seasonally adjusted insured unemployment during the week ending January 28 was 1,688,000, an increase of 38,000 from the previous week's revised level," said the US Department of Labor (DOL) showed on Thursday.

On the other hand, Richmond Federal Reserve (Fed) President Thomas Barkin said on Thursday that it would make sense for the Fed to steer "more deliberately" from here due to lagged effects of policy.

It should be noted that the receding fears of the US-China jitters, following the China balloon shooting by the US, join the hopes of People’s Bank of China’s (PBOC) rate cuts and the restart of the China-based companies’ listing on the US exchanges to favor risk-on mood in the bloc.

That said, the difference between the 10-year and 2-year Treasury bond yields turned the widest since 1980 as the former prints 3.66% and the latter came in around 4.50%. The same signaled the market’s recession fears and triggered the US Dollar run-up.

Moving on, the RBA SoMP will be watched closely to confirm the Aussie central bank’s hawkish bias, as perceived from the latest monetary policy meeting. In a case where the statement lacks details to back the optimism among the policymakers, the AUD/USD could extend the losses.

Following that, China’s CPI and PPI will be observed due to the Aussie-China ties and also because of the latest mixed data from the world’s largest commodity user. Although the forecasts for the yearly inflation numbers for January are impressive, the pair bears could cheer a softer outcome.

Above all, the early signals for the next week’s US inflation data, as well as the first prints of the US consumer confidence, gain major importance due to the Fed policymakers’ indecision and mixed signals from the economics of late.

Technical analysis

Another failure to cross the 21-DMA hurdle, around the 0.7000 round figure, directs AUD/USD towards the 50-DMA, around 0.6870 by the press time.