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AUD/USD struggles to extend rebound, trades below 0.6700

  • Annual inflation in China rose above 5% in January.
  • US Dollar Index waits for next catalyst, stays above 98.50.
  • Coming up: NAB Business Confidence data from Australia. 

After posting its lowest weekly close in more than a decade at 0.6670, the AUD/USD pair gained traction during the Asian trading hours and rose above the 0.6700 handle.

However, the lack of positive developments surrounding the coronavirus outbreak seems to be making it difficult for the AUD to preserve its strength ahead of the American session. As of writing, the pair was still up 0.32% on the day at 0.6695.

Inflation picks up in China

Earlier in the day, the data published by the National Bureau of Statistics of China revealed that inflation, as measured by the Consumer Price Index, rose 1.4% and 5.4% on a monthly and yearly basis, respectively, in January. Although this jump in inflation could force the PBoC to reassess its strategy to battle the negative impact of the coronavirus outbreak, the initial reaction helped the China-proxy AUD gain traction.

Commenting on the impact of data on the PBoC's policy outlook, "the probability of another cut in the 7-day reverse repo is low, as the People’s Bank of China (PBoC) will place emphasis on financial stability and efforts to contain the virus via liquidity injections and re-lending,” said ANZ analysts.

In the meantime, the USD's uninspiring performance at the start of the week provided an additional boost to the pair. Following last week's decisive gain of more than 1%, the US Dollar Index is posting modest losses below the 98.70 mark. Later in the session, Fed Governor Michelle Dowman's speech will be looked upon for fresh impetus and there won't be any macroeconomic data releases from the US.

Technical levels to watch for

 

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