AUD/USD pokes key hurdle above 0.7100 ahead of China data dump, RBA/Fed Minutes

• AUD/USD bulls attack 200-DMA, sidelined near a two-month high.
• Market sentiment dwindles ahead of the key data/events, amid mixed updates surrounding China, US.
• Softer US inflation numbers weighed on hawkish Fed bets but policymakers backed aggressive rate hikes, highlighting this week’s Fed Minutes.
• China’s monthly Retail Sales, Industrial Production can entertain intraday traders; RBA Minutes, Aussie jobs report will be crucial.

AUD/USD grinds higher past 0.7100 as traders await the key catalysts scheduled for release during the day and the week after buyers cheered the most significant weekly jump since late 2020. That said, China’s monthly data dump could direct intraday moves while Minutes of the latest monetary policy meeting from the Reserve Bank of Australia (RBA) and the Federal Reserve (Fed) will be important for the weekly moves. Also critical will be the monthly employment numbers from Australia.

The Aussie pair posted the biggest weekly gains in nearly two years as market sentiment improved on receding hawkish bets on the Fed’s next moves, mainly due to the softer US inflation data. Also keeping the AUD/USD bulls hopeful was an absence of major negatives concerning the US-China ties, as well as firmer equities and softer bond yields.

Consumer Price Index (CPI) or the Producers Price Index (PPI) both the top-tier inflation gauges from the US eased in July, which in turn took some pressure off the Fed policymakers to boost the rates faster amid the looming recession woes. As a result, markets cheered the receding fears of higher rates, which in turn joined the upbeat performance of Wall Street and softer bond coupons to propel the AUD/USD prices despite weaker Inflation Expectations for August at home.

Recently, the August preliminary University of Michigan Consumer Sentiment Index (CSI) edged higher to 55.1 (flash) from 51.5 in July and the market expectation of 52.5. Further details revealed that the one-year-ahead inflation expectations fell to a six-month low of 5.0% from 5.2%, while the five-year inflation outlook increased to 3.0% from 2.9%.

Even so, Richmond Federal Reserve (Fed) Bank President Thomas Barkin said on Friday that he wants to raise interest rates further to bring inflation under control. Even so, the policymaker added that he would watch the US economic data to decide how big a rate hike to support at the Fed's next meeting in September. "I'd like to see a period of sustained inflation under control, and until we do that I think we are just going to have to move rates into restrictive territory," Barkin told CNBC, per Reuters.

Previously San Francisco Fed President Mary Day backed opportunities of witnessing another 75 basis points (bps) of a rate hike in September, while also suggesting an upfront 0.50% rate hike to be sure.

Also, Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans sounded grim. That said, Fed’s Kashkari mentioned that he hasn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023. Further, Fed policymaker Evans stated, “The economy is almost surely a little more fragile, but would take something adverse to trigger a recession.” Fed’s Evans also called inflation "unacceptably" high.

 Against this backdrop, Wall Street closed on the positive side and the US 10-year Treasury yields closed mildly negative, down 5.6 basis points (bps) to 2.83% at the latest.

China’s monthly Retail Sales and Industrial Production for July will offer immediate directions. However, major attention will be given to the Federal Open Market Committee (FOMC) Minutes. Also important will be Tuesday’s RBA Minutes, Australia’s Wage Price Index for the second quarter, up for publishing on Wednesday, and Thursday’s Aussie jobs report.

Given the latest risk-on mood and mixed headlines surrounding China and the US, AUD/USD traders should cheer hints of further rate hikes from the RBA and the Fed’s cautious attitude.

Also read: Weekend News: China, Taiwan gain major attention

Technical analysis

Repeated failures to cross the 200-DMA hurdle, surrounding 0.7120, join the sluggish RSI at the higher end to suggest that the AUD/USD bulls are running out of steam. The pullback moves, however, remain elusive until the quote stays beyond the previous resistance line from late April, at 0.6990 by the press time.