• AUD/USD portrays steady start of the week, keeps Friday’s rebound from two-year low.
• Firmer sentiment, softer US data helped trigger corrective pullback around multi-month low.
• Fears of inflation, growth join geopolitical, covid woes to exert downside pressure.
• Softer prints of April’s Retail Sales, Industrial Production from China can weigh on recent recovery, risk catalysts are important too.

AUD/USD holds onto the recovery moves from a two-year low, after a consecutive six weeks of a downtrend, as bulls attack 0.6950 during the early hours of Asian morning on Monday. In doing so, the Aussie pair consolidates recent losses amid quiet markets with eyes on China’s headline data for April. However, the key risk catalysts keep the rebound in check before the key economics from Australia’s major customer.

Hopes of sooner de-escalation of coronavirus risk in China’s Shanghai and Beijing joined Fed Chair Jerome Powell’s repetition of 50 bps rate hikes concerns to initially trigger the AUD/USD pair’s U-turn from the lowest level since 2020 on Friday. The recovery moves got additional support from the US Michigan Consumer Sentiment Index for May, as well as firmer equities, to keep buyers hopeful afterward.

That said, Shanghai’s plan of zero-COVID at the community level by mid-May, backed by comments supporting 64% vaccinated people above age 60, seemed to have renewed optimism in China. On the same line was a three-day “at home” stay for residents for covid testing to tame and confirm the covid resurgence in Beijing. Furthermore, China’s push for more employment generation to the college students also suggests the dragon nation’s push to do all it can to overcome the economic imbalance triggered by the COVID-19 resurgence.

On the different page, Fed Chairman Jerome Powell’s reiteration of 50 bps rate hikes in the next two meetings preceded the decade low prints of the US Michigan Consumer Sentiment Index for May, to 59.1, to favor the AUD/USD bulls.

Amid these plays, Wall Street benchmarks portrayed the biggest daily gains in over a week whereas the US Treasury yields also recovered. The risk-on mood weighed on the US Dollar Index (DXY) by dragging it from the 20-year high.

Looking forward, April month figures for Retail Sales and Industrial Production, as well as comments from the National Bureau of Statistics (NBS), from China will be crucial for nearby trade directions. Given the covid resurgence, the headline numbers are likely to arrive softer-than-prior, which in turn can weigh on the AUD/USD prices, coupled with the latest geopolitical fears emanating from Russia. That said, China’s Retail Sales growth may shrink further to -6.0% from -3.5% prior whereas the Industrial Production growth can ease to 0.7% from 5.0% previous readouts.

Technical analysis

January’s low around 0.6965 precedes a one-week-old descending trend line near 0.6990 to restrict short-term AUD/USD recovery moves.