AUD/USD Falls Below 0.6700 As Australia's Inflation And Fed Chair Powell's Speech Approach

AUD/USD demonstrates typical pre-data consolidation as it falls to 0.6680 in advance of Australian inflation data on Wednesday morning. In doing so, the Aussie pair also bears the weight of risk-averse headlines regarding China and hawkish Federal Reserve (Fed) concerns ahead of a key speech by Fed Chair Jerome Powell.

US President Joe Biden, speaking about China, Australia's largest customer, stated late Tuesday that China has enormous problems. In addition to his remarks, the Wall Street Journal (WSJ) reported, "The Biden administration is contemplating new restrictions on exports of artificial intelligence chips to China, according to people with knowledge of the situation."

Previously, headlines indicating that Asian lobbyists are advocating for easier rules for the overseas listing of Chinese equities and comments from Premier Li Qiang combined with the People's Bank of China's (PBOC) lower-than-anticipated fixing of the USD/CNY price to favour the AUD/USD. In addition, the selling of US Dollars by major Chinese state institutions, as reported by Reuters, enabled the Australian dollar to maintain its strength.

However, the recent increase in hawkish Fed wagers and US Treasury bond yields, which are supported by US data, have recently weighed on the AUD/USD exchange rate. In spite of this, US Durable Goods Orders posted an unexpected 1.7% increase in May, compared to -1.0% market expectations and 1.2% previously (revised). In addition, the US Conference Board's (CB) Consumer Confidence Index increased to 109.7 in June from 102.5 (revised from 102.5) in May. In a similar vein, the US Housing Price Index increased to 0.7% in April from 0.5% in previous readings (revised), compared to the 0.3% that was anticipated. In April, the S&P/Case-Shiller Home Price Index came in at -1.7% YoY, down from -1.1% the previous month but exceeding market expectations of -2.5%. In addition, New Home Sales increased by 12.2% month-over-month in May compared to 3.5% previously and 0.5% anticipated, while the Richmond Fed Manufacturing Index improved to -7.0 in June from -15.0 previously and -10.0 anticipated.

In the midst of these manoeuvres, despite Wall Street's positive performance, S&P500 Futures post modest losses while US Treasury bond yields increase.

Australia's Monthly Consumer Price Index (CPI) for May, which is anticipated to be 6.1% YoY compared to 6.8% previously, will be crucial, as the same data permitted the Reserve Bank of Australia (RBA) to offer two consecutive hawkish surprises. The speech by Federal Reserve (Fed) Chairman Jerome Powell at the European Central Bank (ECB) Forum in Sintra will also be significant.

Ahead of the Australian data, ANZ analysts stated, "As one of the few who anticipate a hike next week, we see upside risks to AUD and NZD, particularly given that markets are only pricing in 1/3 odds of a hike." If there is no incriminating gun in today's data, however, this could be a story for next week. It might be a quiet day!"