AUD/USD edges higher on the way to 0.7400 amid mixed concerns

• AUD/USD extends rebound from one-year low inside a choppy range.
• US inflation data, Fedspeak back portray risk-on mood, favor bulls.
• Covid woes test the upside momentum amid a light calendar day.
• Aussie Consumer Inflation Expectations, risk catalysts to direct Asian session moves.

AUD/USD consolidates recent gains in a 25-pip range below 0.7390, around 0.7375 at the start of Thursday’s Asian trading session. The pair earlier cheered the US dollar pullback, mainly on the US CPI numbers, but the bears keep reins as covid concerns haunt bulls.

The US Dollar Index (DXY) refreshed the highest levels since early April before stepping back from 93.19 after the US Consumer Price Index (CPI) data backs the Federal Reserve (Fed) in saying that the inflation hike is “transitory”. That said, the headline CPI remained unchanged at 5.4% YoY versus 5.3% forecast whereas the core CPI, ex Food & Energy, eased to 4.3% from 4.5% previous readouts.

In addition to the mixed data, comments from the Fed policymakers also favor the market sentiment, as well as the AUD/USD prices. Notable among them were statements from Fed Reserve Bank of Kansas City President Esther George who said, “the time has come to dial back the settings.” It should be noted, however, that the policymaker ruled out rate hikes while also saying, the road ahead to policy normalization “is likely to be a long and bumpy.”

While the receding fears of tapering and rate hikes favor the AUD/USD buyers, at least for now, Melbourne’s extension of the virus-led lockdowns for seven days and an absence of easing in the infections from New South Wales (NSW) challenge the optimism. Alternatively, the US data also suggests a five-month high death toll and covid figures from China don’t step back in portraying the fears of virus resurgence and economic challenges.

On a different page, the passage of the infrastructures spending plan from the Senate also favors the risk-on mood but the Republican Party’s readiness to stop Democrats when they start negotiating the budget and debt limit questions the optimists. Even so, US President Joe Biden recently said that he is not worried about the debt ceiling as Republicans will not let the US default.

Amid these plays, Wall Street closed mixed and the US 10-year Treasury yields eased to 1.33%.

Moving on, Australia Consumer Inflation Expectations for August, forecast 3.8% versus 3.7% prior, will be important to watch for the immediate trading direction. However, major attention will be given to the headlines concerning COVID-19 ahead of the US Producer Price Index (PPI) for July and Weekly Jobless Claims data.

Technical analysis

AUD/USD rebound battles 21-DMA around 0.7375, a break of which needs to cross monthly resistance line near 0.7400 and a six-week-old horizontal area surrounding 0.7410-15 to convince the bulls. Alternatively, a daily closing below 0.7315 will quickly direct the pair bears to attack the yearly bottom of 0.7288.