AUD/USD Pierces 0.6900 Over Concerns Regarding Mysterious Objects, The Federal Reserve, Us Inflation, And Australian Employment

AUD/USD sellers attack the 0.6900 support on Monday morning amid cautious market sentiment, after disregarding the US Dollar's strength to achieve weekly gains the previous week.

In addition to US Federal Reserve (Fed) discussions, the "unidentified objects" flying over US and Chinese airspace contributed to the market's cautious disposition. The sentiment ahead of Tuesday's release of the US Consumer Price Index (CPI) for January might also weigh on the risk barometer pair.

The shooting of unidentified objects by the United States and China, with the White House accusing China of espionage, appears to impact on market mood and the risk-barometer AUD/USD pair. Recently, the US General permitted Australian buyers to take a break, stating that there is no basis to believe that the most recent objects are Chinese. Notably, the United States has shot down roughly four of these objects, but China is preparing to shoot down one in approximately one week.

Patrick Harker, president of the Federal Reserve Bank of Philadelphia, refuted rumors of a Fed rate drop in 2023. However, the policymaker did say, "The Fed is unlikely to reduce rates this year, but could do so in 2024 if inflation begins to decline." Harker's remarks were consistent with those of Fed Chairman Jerome Powell and Richmond Federal Reserve (Fed) President Thomas Barkin, who had earlier refrained from praising the positive US employment report.

In contrast, the majority of Fed Governors and US diplomats, including US President Joe Biden and Treasury Secretary Janet Yellen, have dismissed fears of a US recession and look to be Fed hawks. Consequently, Fed policymakers have a dilemma, which makes this week's US inflation statistics all the more significant.

In spite of this, preliminary readings of US University of Michigan (UoM) Consumer Sentiment for February increased to 66.4, compared to 65.0 anticipated and 64.9 previously. In addition, the UoM said that inflation estimates for the coming year rose to 4.2% this month, up from 3.9% in January and 4.4% in December. The UoM said that long-term inflation expectations (5-year) remained at 2.9% for the third consecutive month and maintained within the tight range of 2.9% to 3.1% for 18 of the last 19 months. Based on updated seasonal adjustment factors, the US Bureau of Labor Statistics changed the monthly Consumer Price Index (CPI) for December to +0.1% from -0.1% on Friday.

It's worth noting that the Reserve Bank of Australia's (RBA) hawkish hike in the previous week helped the AUD/USD to remain firmer, but the cautious mood and forecasts of a weaker Australian employment report, compared to the stronger US inflation data, seem to entice AUD/USD bearish.

S&P 500 Futures reflect the prevailing sentiment with modest losses, while US Treasury bond yields stay stagnant.

A light economic calendar on Monday underscores the importance of risk drivers for AUD/USD pair traders seeking direction.