AUD/USD: Pressured towards 0.7800 amid US dollar bounce, China inflation eyed

• AUD/USD holds lower ground after snapping three-day winning streak.
• Market sentiment dwindles as traders await more clues to confirm no reflation fears.
• Wall Street drops, US Treasury yields stay firmer.
• China CPI, PPI for April, Second-tier Aussie data will decorate calendar, risk will be the key.

AUD/USD remains depressed towards the 0.7820 previous resistance, around 0.7830 at the start of Tuesday’s Asian session. The pair dropped the most in a week the previous day after taking a U-turn from late February tops as optimism towards Fed policy continuation fizzled. Traders look for this week’s key US inflation data but today’s China Consumer Price Index (CPI) and Producer Price Index (PPI) is also important to watch consider its trade-ties with Canberra, despite recent jitters.

Bulls betrayed or catching breather?

AUD/USD cheered the absence of challenges to the US Federal Reserve’s (Fed) easy money policies, backed by Friday’s Nonfarm Payrolls (NFP) debacle, by rallying to a 10-week top before declining for the first time in four days as traders recheck bets for no rate hike, tapering. The reason could be traced from US President Joe Biden’s strong push for more stimulus and no immediate major challenge signaling inflation could come down. Also, some of the hurdles marked for inflation are likely as the short-term bottlenecks rather than the drags that could exert fresh price pressure. Hence, Wednesday’s US CPI becomes the key and hence the pre-event cautious sentiment seems to pause AUD/USD bulls, for now.

Also, Dallas Fed Chairman Robert Kaplan continues to diverge from the rest of the Fed company and said that it will be ‘healthy’ to begin discussions on tapering sooner rather than later as we approach “substantial further progress”.

Elsewhere, Australia’s March Retail Sales eased to 1.3%, versus 1.4% initial forecast, whereas sentiment figures from the National Australia Bank (NAB) came out as stronger. It should be noted that the coronavirus (COVID-19) woes escalate in Asian but vaccine optimism surrounding Australia and Eurozone battle the bears. Further, fewer odds of the second Scottish Independence referendum and US President Biden’s economic optimism should have favored the risk-on mood, but failed.

Amid these plays, US equities drop and the US 10-year Treasury yields mark the second consecutive positive day by the end of Monday’s North American trading session.

Looking forward, Australia’s HIA New Home Sales for April, previous 90.3%, may offer an intermediate direction to the AUD/USD prices ahead of China’s key inflation figures. Forecasts suggest that the CPI and Producer Price Index (PPI) are both likely to improve in April from 0.4% and 4.4% YoY to 1.0% and 6.6% in that order. If actual releases meet the market consensus, or even surpass, AUD/USD may rebound towards the 0.7900 resistance.

Technical analysis

Despite failing to cross the 0.7900 hurdle, not to forget posting the first negative daily closing in four, AUD/USD sellers await a clear downside break of 0.7820 previous resistance, comprising multiple highs since early January, to beat the bulls. Following a sustained downside beneath 0.7820, the 0.7715-10 support confluence, including an ascending trend line from April 01, 100-day and 50-day SMAs, will be the key.