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AUD/USD Pares Weekly Losses Around 0.6800 Ahead Of Fed Chair Powell's Testimony
AUD/USD gains bids to reestablish intraday high while rebounding from one-week low. Aussie pair consolidates three-day losses despite conflicting market signals and indications. Bears fail to rationalise hawkish RBA Minutes amid contradictory Bullock comments and PBoC rate cut. Positive US housing data and Fed discussions boosted the US Dollar prior to its latest retreat amid pre-event positioning, with Powell's Testimony in focus.
The AUD/USD remains marginally bid around 0.6790 as it posts its first daily gains in four days while rebounding from a one-week low recorded the day before. However, the Aussie pair's recovery during the early Asian session on Wednesday could be attributed to the market's preparations for this week's major event, the semi-annual Testimony of Fed Chair Jerome Powell.
Notably, market sentiment remains volatile, allowing the risk-barometer AUD/USD pair to nurse its wounds near the lowest levels in a week despite hawkish Fed signals and risk-negative news emanating from China. The hawkish Minutes of the Reserve Bank of Australia (RBA) versus the People's Bank of China's (PBoC) rate reduction and the cautious comments of RBA Assistant Governor Michele Bullock are also noteworthy.
Recent news that US Vice President Joe Biden referred to Chinese President Xi Jinping as a dictator on Tuesday prompted the AUD/USD pair to recover near the intraday high. As a result of US Secretary of State Antonia Blinken's disappointing trip to Beijing, these remarks signal grave concerns regarding the state of US-China relations. The same should encourage Aussie pair sellers.
Similarly, weaker-than-expected readings of Australia's Westpac Leading Index for May, at -0.27% versus -0.02% previously, give AUD/USD sceptics reason for optimism.
The day before, the RBA Minutes defended the second consecutive hawkish surprise by calling it a ploy to bolster confidence that inflation will return to normal more quickly. However, RBA Deputy Governor Michele Bullock stated that the RBA's only weapon to combat inflation is to raise interest rates. The policymaker added that employment and economic growth must decelerate for some time.
After the People's Bank of China (PBoC) reduced two key lending rates (Loan Prime Rate (LPR) and Medium-term Landing Facility (MLF) rate) for the first time in nearly a year, sentiment deteriorated.
In addition, hawkish remarks from Fed officials and positive US data. Philip Jefferson, a Fed governor and nominee for vice chair, stated on Tuesday, "I remain focused on returning it to our 2% target." In the same vein, Federal Reserve Governor Lisa Cook stated on Wednesday before the Senate, "I am committed to promoting sustained economic growth in the context of low and stable inflation." According to prepared statements for Wednesday's Testimony, Fed Board nominee Adriana Kugler also stated that returning inflation to the central bank's 2% target is essential for establishing a solid foundation for the US economy.
In spite of this, US Housing Starts soared to their highest level since April 2022 by increasing 21.7% MoM in May, compared to -2.9% (revised from +2.2%) in April and market predictions of -0.8%. In a similar vein, Building Permits were also positive for the month in question, rising 5.2% MoM compared to -5.0% expected and -1.4% prior readings (revised from -1.5%).
As a reflection of sentiment, the Wall Street benchmark began the week on the downside, and US Treasury bond yields also snapped a two-day winning trend.
Despite the most recent corrective rebound, AUD/USD remains under pressure as market participants await Fed Chair Jerome Powell's semiannual testimony.
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