AUD/USD fails to cheer hawkish RBA bets neare 0.6700 ahead of US inflation signals

• AUD/USD fades bounce off one-week low marked earlier in the day amid mixed sentiment.
• Hopes that Aussie budget will propel inflation and allow RBA to stay hawkish recently gained momentum.
• Expectations of China inflation recovery also made rounds; Aussie-China trade talks prod bears.
• Fears about US debt ceiling expiry, banking fallouts joins hawkish Fed talks to weigh on AUD/USD ahead of US data.

AUD/USD stays defensive at the weekly low of around 0.6700, retreating of late, as market sentiment remains dicey heading into Friday’s European session.

In doing so, the Aussie pair fails to cheer recent hawkish expectations from the Reserve Bank of Australia (RBA) and the beginning of the Aussie-China trade talks, not to forget the hopes of “V” shape rebound in China inflation. The reason could be linked to the US Dollar’s ability to cheer sour sentiment and hawkish Fed bets ahead of the inflation clues.

Upbeat surplus news from Australian Federal Budget, released on Tuesday, pushed Goldman Sachs to unveil hawkish hopes about the RBA's next move, mainly due to a likely increase in inflation. With this, the GS forecasts another RBA rate hike in July and warns there are further to come after that.

On the other hand, Chinese media mentioned, “Prices are expected to show a "V"-shaped trend throughout the year.” The news quotes Guo Liyan, Director of the Comprehensive Situation Office of the China Academy of Macroeconomic Research, to also mention that looking forward to the whole year, my country's overall price level will fluctuate slightly and moderately within a reasonable range

Elsewhere, Bloomberg said that China and Australia’s trade ministers will hold their first in-person economic dialog since 2019 on Friday as Canberra hopes to negotiate an end to sanctions on billions of dollars worth of its agricultural exports.

Above all, US Dollar Index (DXY) retreats from a one-week high to 102.00 after posting the biggest daily gains in two months the previous day despite mostly downbeat prints of the US data. That said, the US Producer Price Index (PPI) improved to 0.2% MoM for April versus 0.3% expected and -0.4% prior. More importantly, PPI ex Food & Energy, known as Core PPI, rose on MoM but eased on YoY. Further, US Initial Jobless Claims rose by 264,000 to push the level to the highest level since October 2021. Despite the unimpressive data, Minneapolis Fed President Neel Kashkari mentioned on Thursday that inflation has eased but warned it is above the Fed's 2% target.

Talking about the main risks, fears surrounding the US debt ceiling expiry and banking fallouts seem to allow the US Dollar Index to brace for the first weekly gain in three while pushing down the US Treasury bond yields for the third consecutive week.

Looking ahead, the outcome from the Aussie-China trade meeting and the US University of Michigan’s (UoM) Consumer Sentiment Index (CSI) for May, as well as the UoM 5-year Consumer Inflation Expectations for the said month, will be the key for AUD/USD traders to watch for clear directions.

Technical analysis

Multiple failures to cross the 100-DMA join a clear downside break of the one-week-old ascending trend line, near 0.6740 by the press time, to keep AUD/USD bears hopeful.