• Sentiment remains upbeat, as shown by US equities finishing with gains.
• The US Dollar dropped on the back of expectations that the Fed might slow the pace of rate increases.
• Australian Retail Sales capped the AUD rally towards 0.7200.
• AUD/USD Traders eye Aussie PMIs, and a busy US calendar led by FOMC’s monetary policy decision.

The AUD/USD is recovering some ground after falling to weekly lows of 0.6938, courtesy of a dismal Retail Sales report from Australia. Nevertheless, the Australian Dollar (AUD) stages a recovery, and although finished with losses, they were minimal. As the Asian session begins, the AUD/USD is trading at 0.7053, almost flat.

Risk appetite improvement weighed on the US Dollar

Wall Street finished on a higher note in January. US corporate earnings and recent economic data revealed by the Labor Department weighed on the greenback, which is losing, as the US Dollar Index shows, 0.15%, down at 102.089. The Employment Cost Index (ECI), a measure of wage inflation, cooled as data showed, down from 1.2% to 1% QoQ. That data, along with the US Core PCE, the Federal Reserve’s (Fed) favorite inflation gauge, edging lower for the fourth consecutive month, increased the likelihood of a Fed pivot.

The greenback tumbled on the data release, as shown by the US Dollar Index, dipping towards its daily lows of 102.008 before recovering some ground. The AUD/USD paired some of its losses, though mostly towards Wall Street’s close.

Aside from this, Australian Retail Sales for December disappointed analysts, tumbling to -3.9% MoM vs. -0.3% estimations, reported the Australian Bureau of Statistics (ABS). Even though it was the first drop in  2022 after eleven months of consecutive monthly rises, sales fell sharply, with department stores, among other sectors like clothing, footwear, and personal accessories, sliding to -27%. That said, it was a headwind for the AUD/USD, which extended its losses toward the day’s lows, slumping below the 0.7000 figure.

What to watch?

Ahead of the week, the Australian economic docket will feature Manufacturing PMIs, alongside Governor Kohler’s Reserve Bank of Australia (RBA) speech. On the US front, the calendar will reveal S&P Global and ISM Manufacturing PMIs, JOLTs Openings, and the US Federal Reserve’s monetary policy decision on Wednesday.

AUD/USD Key Technical Levels