AUD/USD licks its wounds above 0.6700 as key PMI data, Aussie Q4 GDP loom

• AUD/USD picks up bids to lick its wounds at the lowest levels in seven weeks.
• Market consolidates ahead of major data/events, seek more clues.
• Strong US data, hawkish Fed bets and geopolitical concerns previously cheered Aussie bulls.
• US/China PMIs, Australia Retail Sales eyed for clear directions.

AUD/USD prints mild gains around 0.6735 during the initial Asian session on Monday as bears take a breather around the lowest levels since early January following a two-week downtrend. In doing so, the Aussie pair traders seem to brace for this week’s key data amid a lack of major directives. However, the hawkish Fed concerns and strong US data keeps the bears hopeful even as the Reserve Bank of Australia (RBA) officials signalled more rate hikes ahead.

That said, the last week’s RBA Minutes and comments from RBA Governor Philip Lowe, as well as Deputy Governor Guy Bullock, signalled further rate lifts are on the table. However, the hawkish concerns at the Aussie central bank weren’t as strong as those at the Federal Reserve (Fed), which in turn drowned the AUD/USD pair.

It should be noted that the US Dollar Index (DXY) marked a four-week uptrend by the end of Friday, grinding near the highest levels in seven weeks of late, as strong US data, especially relating to inflation, underpinned hawkish Federal Reserve concerns.

Among them, Friday’s US Personal Consumption Expenditures (PCE) gained major attention as the headline PCE Price Index rose to 5.4% YoY versus 5.3% prior and 4.9% market forecasts. Further, the more relevant Core PCE Price Index, known as Fed’s favorite inflation gauge, rose to 4.7% YoY, compared 4.6% prior and analysts' forecast of 4.3%.

On the other hand, Cleveland Fed President Loretta Mester told CNBC on Friday that his funds' rate was above the median in December and still thinks they need to be somewhat above 5%. The policymaker also added that inflation risks still tilted to the upside. On the same line, Federal Reserve Bank of Boston President Susan Collins said, “More rate hikes needed to deal with 'too high' inflation.”  Furthermore, Governor Philip Jefferson said, “Wage growth in the US is running too high to be consistent with a timely and sustainable return to the Federal Reserve's 2% inflation objective.”

It’s woth mentioning that US Treasury Secretary Janet Yellen also highlighted the US inflation concerns on the sideline of the Group of 20 (G20) meetings and backed the US Dollar bulls.

Apart from the US data and hawkish Fed concerns, the geopolitical fears surrounding Russia and China also weigh on the AUD/USD price, due to its ties with China, as well as because of the pair’s risk-barometer status.

In the last week, China released its 12-point peace plan on the Ukraine-Russia war but failed to gain accolades due to its ties with Russia. Following that, Germany’s Finance Minister Christian Lindner said on the sidelines of the G20 finance ministers and central bank governors' meeting on Friday that there cannot be any business as usual with Russia as long as this war continues. On the same line, European Commission President Ursula von der Leyen on Friday, “Sanctions are sharply eroding Russia's economic base.” EU’s von der Leyen also stated that China has already taken side for Russia, they have to view their principles in that light.

Against this plays, Wall Street benchmarks posted the biggest weekly fall in 2023 while the US two-year Treasury bond yields rose to the highest levels since early November 2022.

Moving on, AUD/USD traders should keep their eyes on the risk catalysts ahead of this week’s US ISM Manufacturing PMI, Services PMI, Durable Goods Orders and China’s official PMIs. Also important to watch will be Aussie Retail Sales data for January and the fourth quarter (Q4) Gross Domestic Product (GDP).

Technical analysis

AUD/USD rebound remains elusive unless providing a daily close beyond 0.6740 resistance confluence, comprising the 100-DMA and previous support line from late November 2022.