AUD/USD remains pressured around 0.7350 amid broad USD strength, China CPI eyed

• AUD/USD holds lower ground after snapping a five-week downtrend at the latest.
• US dollar benefits from strong employment figures, upbeat Treasury yields.
• RBA Minutes reiterate cautious optimism, China trade numbers came in mixed while US Senators progress over infrastructure spending bill.
• China inflation data, covid and stimulus updates will be the key for Asia amid light calendar.

AUD/USD kick-starts the trading week around Friday close of 0.7355, keeping the 15-pip range at the lower end after declining the most in a week. The Aussie pair slumped the previous day after the US dollar cheered strong employment numbers. It’s worth noting that the covid woes and stimulus chatters exert additional downside pressure on the quote ahead of today’s China inflation data.

July’s employment statistics from the US buoyed the US Dollar Index (DXY) on Friday. The headlines Nonfarm Payrolls (NFP) rose by 943,000 versus June's increase of 938,000 (revised from 850,000) and surpassed the market expectation of 870,000. Further details revealed that the Unemployment Rate declined to 5.4% from 5.9% in June and the Labor Force Participation Rate improved modestly to 61.7%.

The strong jobs report rejected the market fears that the Delta covid variant gradually tames the economic recovery. The optimism favored the US dollar the most as the policymakers are also on the table to unveil a multi-billion dollar worth of infrastructure spending.

As per the latest updates from Reuters, “The Senate convened at noon EDT (16:00 GMT) and was expected to hold two procedural votes on Sunday evening, unless Republicans and Democrats can reach an agreement on amendments to the package that was the result of months of bipartisan talks.”

In addition to the strong employment numbers and stimulus talks, virus woe also underpins the greenback’s safe-haven demand. As per the latest coronavirus numbers from Australia, the total daily infections jumped to the fresh high since mid-August 2020 with 363 cases for Friday, before easing to 292 numbers for Saturday. On the other hand, “New daily coronavirus cases in the United States have hit a six-month high, with the seven-day average reaching nearly 95,000. That rate is five times higher than it was less than a month ago,” per Reuters’ piece published on Sunday.

Also weighing on the AUD/USD prices could be the Reserve Bank of Australia’s (RBA) policymakers’ readiness to extend easy money policies and push back the rate hikes at least until 2024, per the latest policy meeting minutes and quarterly statement.

Amid these plays, the US 10-year Treasury yields jumped the most in five months and offered an extra strength to the US dollar whereas equities were mixed, mildly bid, amid fears of tapering. Further, gold prices dropped around $35.00 and became another catalyst for the AUD/USD weakness.

Looking forward, China inflation data for July is likely to ease YoY but the headline Consumer Price Index (CPI) data for MoM could reverse -0.4% prior with +0.2% figures. That said, the Producer Price Index (PPI) may remain unchanged at 8.8% YoY whereas the CPI is expected to ease from 1.1% to 0.8% on YoY.

Given the mixed inflation data, like the weekend trade numbers wherein the headline figures grew but exports eased, from Australia’s largest customer, AUD/USD may rely on the risk catalysts for further direction. Overall, the firmer US dollar may weigh on the Aussie prices while covid woes in Canberra could become an extra bearish factor.

Technical analysis

Failures to cross 0.7415-20 monthly horizontal resistance area direct AUD/USD prices towards the yearly low surrounding 0.7290. However, an ascending support line from July 21, around 0.7350, restricts immediate declines of the pair.