AUD/USD: Strong yields keep bears hopeful of testing 0.6480 support, US data eyed

• AUD/USD remains pressured around weekly low after a volatile day.
• Aussie pair initially cheered softer US Dollar post US inflation but a jump in yields drowned the risk-barometer pair afterwards.
• Market’s indecision about Federal Reserve’s next step joins economic uncertainty, RBA’s status quo to favor bears.
• US PPI, Michigan Consumer Sentiment Index and UoM 5-year Consumer Inflation Expectations will be important for clear directions.

AUD/USD bears keep the driver’s seat after a whippy day as the quote stays depressed at 0.6515 during the early hours of Friday morning in Asia. The Aussie pair refreshed the weekly high to near 0.6620 after the US inflation data initially triggered the US Dollar’s slump and helped Antipodeans rise. However, a second reading of the same and a slew of Fed policymakers’ efforts to cheer the victory against the US inflation raised doubts about the US data, which in turn joined a jump in the Treasury bond yields to drown the Aussie pair during late Thursday.

On Thursday, the US Consumer Price Index (CPI) for July matched market forecasts to reprint 0.2% MoM figures. However, the yearly CPI improved slower-than-expected 3.3% to 3.2% YoY for the said month, versus 3.0% previous readings, marking the first acceleration in the annual rate in 13 months. Furthermore, the CPI ex Food & Energy, also known as the Core CPI, also flashed an unchanged 0.20% MoM figures while meeting market consensus but eased to 4.7% YoY compared to 4.8% marked in June and the expected numbers.

Elsewhere, the US Initial Jobless Claims rose to 248K for the week ended on August 04 versus 230K expected and 227K prior while Continuing Jobless Claims softened to 1.684M from 1.692M (revised), versus 1.71M market forecasts.

Following the data, Philadelphia Federal Reserve Bank President Patrick Harker cited the Fed’s progress in its fight against inflation and was joined by Boston Federal Reserve President Susan Collins and Atlanta Federal Reserve Bank President Raphael Bostic to cheer the softer US CPI. However, San Francisco Fed President Daly turned down the cheers for their victory while saying, “There’s still more work to do.” 

Elsewhere, Australia’s Consumer Inflation Expectations for August tracked downbeat China inflation clues and exerted downside pressure on the Aussie pair during early Thursday. On the same line were fears that the UK and European Union will also follow the US in limiting investment in China technology companies. Though, the market’s fears were limited as these measures were already discussed and known. Further, the Chinese policymakers’ readiness to take more steps to defend their economy also favored the AUD/USD during early Thursday.

Amid these plays, the US Dollar Index (DXY) marked a positive daily closing around 102.62, after initially declining to the one-week low, whereas the US 10-year Treasury bond yields jumped the most in a week to 4.10% at the latest. Even so, Wall Street managed to end the day on a positive side, despite trimming gains by the day’s end.

Moving on, Reserve Bank of Australia (RBA) Governor Philip Lowe and Deputy Governor Bullock's Testimony before the House of Representatives Standing Committee on Economics will offer immediate directions to the Aussie pair. However, the US Producer Price Index (PPI) for July will precede the first readings of the University of Michigan’s (UoM) Consumer Sentiment Index (CSI) for August to direct intraday AUD/USD moves more clearly. Also important will be the UoM 5-Year Consumer Inflation Expectations for the said month. Above all, the central bank updates and China news will be crucial to determine the pair’s further direction.

Technical analysis

A clear downside break of a 10-month-old rising support line, now resistance near 0.6550, directs AUD/USD towards an upward-sloping trend line from November 2022, close to 0.6480 at the latest.