AUD/USD Struggles To Justify Cautious Optimism Below 0.6700; Australia/US Inflation In The Spotlight

AUD/USD licks its wounds at the lowest levels in two weeks, fluctuating between 0.6680 and 0.6685 after declining the most in ten months the previous week. In doing so, the AUD/USD pair struggles to validate the market's mildly bullish sentiment, primarily due to weekend news from Russia and China and apprehensions of a narrowing gap between the Reserve Bank of Australia (RBA) and the Federal Reserve (Fed).

The US Dollar was weighed down on Monday morning by scepticism regarding the power of Russian President Vladimir Putin in Moscow and expectations of a significant stimulus from China.

According to Reuters, "heavily armed Russian mercenaries withdrew from the southern Russian city of Rostov in accordance with an agreement that halted their rapid advance on Moscow but raised questions on Sunday about President Vladimir Putin's hold on power,"

On the other hand, Ning Jizhe, deputy head of the economic committee of the Chinese People's Political Consultative Conference (CPPCC) and a former vice head of the National Development and Reform Commission (NDRC), signalled concerns about a quicker stimulus from China, allowing the AUD/USD to recover due to its business ties with Beijing. China's Ning Jizhe was quoted by Reuters as saying, "China must take immediate action to bolster a faltering post-COVID recovery in the world's second-largest economy."

However, news reports indicating a pause in China optimism by major investors, coupled with hawkish comments from Fed officials and relatively optimistic US data, weigh on the AUD/USD exchange rate.

"Investors are awaiting a large influx of stimulus from China before placing more aggressive wagers on a recovery, having been disappointed by economic data and a lack of meaningful policy response from Beijing over the past few months, according to Reuters.

After observing positive data, Fed officials hurry to propose two additional rate hikes for the United States. The US S&P Global PMIs for June were uneven on Friday, with the Manufacturing PMI falling to 46.3 from 48.4 previously, compared to the expected 48.5, while the Services PMI rose to 54.1 from 54.0 despite being lower than the 54.9 previous monthly figure. This resulted in a decrease in the Composite PMI to 53.0, compared to 54.4 market expectations and 54.3 previously.

Despite a negative week for Wall Street and an increase in US Treasury bond yields, S&P500 Futures increase intraday by 0.20% near 4,400 due to these trades.

Australia's inflation and Retail Sales data will join the Fed's preferred inflation barometer, Core Personal Consumption and Expenditure (PCE) data, to influence the AUD/USD this week. As well as the results of the US Bank Stress Test, it will be essential to keep an eye on the speeches of the top central bankers at the European Central Bank (ECB) Forum.