• AUD/USD grinds higher after filling the week-start gap.
• China-inspired risk-on mood joins downbeat US data to favor AUD/USD bulls.
• Australia Building Permits slumped to -15.1% in November.
• Risk catalysts will be important for immediate directions, US/China inflation figures are the key.

AUD/USD clings to mild gains around 0.6890 as recently downbeat Aussie data probes the previous advances linked to the upbeat risk profile during early Monday. Also likely to have probed the Aussie buyers could be the anxiety ahead of this week’s key inflation data from the US and China.

Australia’s Building Permits dropped to -15.1% YoY in November versus -6.4% prior. Further details suggest that the MoM prints also declined to -9.0% from -5.6% prior (revised from -6.0%), as well as the -1.0% market forecasts.

Elsewhere, market sentiment remains firmer as China reopens national borders after a three-year pause. On the same line could be the early signals suggesting China’s heavy shopping during the festive season, as well as comments from People’s Bank of China (PBOC) Official suggesting optimism surrounding China’s growth conditions.

Adding to the risk-on mood could be the receding odds of the Fed’s aggressive rate hikes, mainly due to the recently downbeat US data, as well as mixed Fedspeak.

That said, US Nonfarm Payrolls (NFP) rose by 223,000 in December compared to the market expectations of 200,000 and November's increase of 256,000 (revised from 263,000). Further details of the US December jobs report revealed that the Unemployment Rate declined to 3.5% from 3.6% in November and 3.7% expected. More importantly, the Average hourly earnings rose 0.3% in December versus 0.4% prior while the YoY figures eased to 4.6% from 4.8% in November.

Further, US ISM Services PMI slumped to the lowest levels in 31 months while suggesting a contraction in activities with 49.6 figures for December, versus the market expectations of 55 and 56.5 marked in November. On the same line, US Factory Orders also slumped, falling 1.8% in November after gaining 0.4% in October.

It should be noted that Atlanta Federal Reserve President Raphael Bostic highlighted the fears of the US economic slowdown while outgoing Chicago Fed President Charles Evans favored a 0.50% rate hike in December. Further, Kansas City Fed President Esther George highlighted inflation fears whereas Richmond Federal Reserve Bank President Thomas Barkin praised the last two months of inflation reports by terming them as “a step in the right direction,” but marked fears from the higher median figures.

Against this backdrop, Wall Street closed positive while the US 10-year Treasury yields dropped 16 basis points (bps) to 3.56%, the lowest levels in three weeks. It’s worth noting that the S&P 500 Futures print 0.20% intraday gains by the press time.

Considering the mixed mood and a light calendar, AUD/USD prices may witness further grinding towards the north, as market sentiment remains firmer. However, the Consumer Price Index (CPI) for December from China and the US, up for publishing on Wednesday and Thursday respectively, will be crucial for the risk barometer pair traders to watch for clear directions.

Technical analysis

A clear upside break of the three-week-old resistance line, around 0.6885 by the press time, becomes necessary for the AUD/USD bull’s conviction. Also acting as upside filters is the 0.6900 round figure and September 2022 high near 0.6920.