AUD/USD stays defensive above 0.6600 as China PMI, Fed’s favorite inflation loom

• AUD/USD remains sidelined after bouncing off a three-week low.
• Upbeat US data, hawkish Fed speak keeps Aussie bears hopeful.
• Australia Retail Sales, risk-on mood put a floor under prices of risk-barometer pair.
• China’s official PMIs, US Core PCE Price Index eyed for clear directions.

AUD/USD portrays pre-data anxiety around 0.6610-15, defending the previous day’s rebound from the lowest levels in three weeks ahead of the key China and US data amid early Friday in Asia. In addition to the cautious mood, mixed sentiment about the Reserve Bank of Australia (RBA) and the market’s upbeat risk appetite also limit the major currency pair’s latest moves.

On Thursday, a surprise jump in Australia Retail Sales, to 0.7% MoM for May versus 0.1% expected and 0.0% prior, offered breathing space to the AUD/USD bears after the Australian Monthly Consumer Price Index (CPI) disappointed the Reserve Bank of Australia (RBA) hawks the previous day.

Also keeping the AUD/USD buyers hopeful was the market’s risk-on mood, backed by upbeat US data and receding fears of a recession in the West, as well as chatters that China’s softer economic recovery won’t be widespread.

That said, the US Gross Domestic Product (GDP) Annualized, mostly known as the Real GDP, grew at the 2.0% rate for the first quarter (Q1) of 2023 versus the 1.3% initial estimation. Further, the US Weekly Initial Jobless Claims slumped to 239K for the week ended on June 23 compared to 265K expected and revised prior. However, the Personal Consumption Expenditure (PCE) Price for Q1 2023 eased to 4.1% QoQ from 4.2% expected and prior whereas the Pending Home Sales slumped to -2.7% MoM for May compared to 0.2% expected and -0.4% prior (revised).

It should be noted, however, that the hawkish Federal Reserve (Fed) comments and mixed China concerns weigh on the risk-barometer pair.

Fed Chair Jerome Powell spoke at the Fourth Conference on Financial Stability hosted by the Bank of Spain, in Madrid, while saying, “A strong majority of Fed policymakers expect two or more rate hikes by year-end.” Additionally, Atlanta Federal Reserve President Raphael Bostic told reporters regarding future rate increases, as reported by Reuters, that he doesn’t see as much urgency to move as stated by others, including Chairman Jerome Powell. The policymaker, however, recently took a U-turn while saying, “I think it's unambiguous that inflation has fallen considerably."

Elsewhere, mixed headlines about the US-China ties as US Treasury Secretary Janet Yellen ‘hopes’ to visit China to re-establish contacts but also showed readiness to take actions to protect national security interests even at an economic cost.

Against this backdrop, Wall Street closed positive but the US 10-year and two-year Treasury bond yields also rallied while the US Dollar Index (DXY) refreshed its weekly top before retreating to 103.40. It should be noted that the S&P500 Futures print mild gains by the press time.

Moving on, China’s official Purchasing Managers’ Index (PMI) details for June and the Federal Reserve’s (Fed) favorite inflation gauge, namely the US Core Personal Consumption Expenditure (PCE) Price Index, for May, will be in the spotlight.

While China’s headline NBS Manufacturing PMI is expected to improve to 49.0 from 48.8 and the Non-Manufacturing PMI may ease to 50.8 from 54.5 prior, fears about the dragon nation’s economic weakness exert downside pressure on the AUD/USD due to Aussie-China ties. Further, the US Core PCE Price Index is likely to remain static at 0.4% MoM and 4.7% YoY, which in turn may allow the Fed to keep its hawkish bias and exert downside pressure on the AUD/USD.

Technical analysis

Despite the Aussie pair’s latest corrective bounce off the multi-day low, backed by a nearly oversold RSI (14) line, a fortnight-old descending resistance line and the 200-DMA, respectively near 0.6645 and 0.6695, limit the immediate upside of the AUD/USD pair.