AUD/USD drops back below 0.7400 on USD rebound, covid woes

• AUD/USD refreshes intraday low, snaps two-day recovery moves.
• Virus infections ease from multi-day top but policymakers stay concerned.
• Stock futures, US Treasury yields both portray risk-off mood.
• US GDP backed Fed’s refrain to discuss tapering, Core PCE Price Index eyed.

AUD/USD teases intraday low of 0.7384, down 0.10% on a day, amid Friday’s Asian session. In doing so, the Aussie pair drops for the first time in three days as market sentiment sours amid the coronavirus concerns.

Although New South Wales (NSW) posted softer-than-previous daily infections, 172 versus 240, Aussie diplomats are worried over the Delta covid variant’s latest spread as the national tall stays around highest since August 2020. Also challenging the Australian policymakers is the public outrage versus the virus-led activity restrictions, which in turn pushed the NSW police to say, per ABC News, “Don't come into Sydney tomorrow to protest.”

On a different page, US President Joe Biden pushed for vaccination to the White House staff or welcome routine tests after the US marked the biggest one-day increase in cases since February. Further, Japan witnesses above 10,000 cases for the first time and stays ready to take more prefectures under virus-led emergency whereas the UK’s daily count of the COVID-19 eases but the seven-day average jumps 22%.

While the covid fears weigh on the market’s mood and put a safe-haven bid under the US dollar, downbeat data and stimulus optimism restrict the greenback’s latest bounce. The preliminary reading of the US Q2 GDP figures eased below 8.5% market consensus to 6.5% QoQ, versus 6.4% prior. However, the consumer spending details remain robust and suggest economic recovery. In addition to the GDP, upbeat weekly Jobless Claims and further softening of the housing data also convinced market players of further easy-money policies from the Fed.

Additionally challenging the market bears are the updates over the US President Biden’s infrastructure spending talks in the Senate. “The U.S. Senate on Thursday prepared to tackle the details of a $1 trillion bipartisan infrastructure bill backed by President Joe Biden, with the possibility of weekend work looming after lawmakers agreed to advance the measure,” said Reuters.

It’s worth noting that Australia’s Q2 Producer Price Index (PPI) rose past 0.2% forecast and 0.4% prior to 0.7% QoQ whereas the Private Sector Credit for June also crossed 0.1% expectations and 0.4% previous readouts to 0.9% MoM.

Amid these plays, S&P 500 Futures drop over 0.6% whereas the US 10-year Treasury yields slip 1.8 basis points (bps) to 1.25% by the press time.

Given the risk-off mood, upbeat Aussie data may not help the AUD/USD regain upside momentum. However, US Core Personal Consumption Expenditure Price Index for June, expected 3.7% YoY versus 3.4% prior, will be the key to follow.

Read: US Core Personal Consumption Expenditure Price Index June Preview: Bad will not be bad enough

Technical analysis

Failures to provide a daily closing beyond a one-month-old resistance line, near 0.7390, not to forget pullback from the 0.7400 threshold, keep AUD/USD sellers hopeful. Even if the quote crosses the 0.7400 round figure, the pair buyers remain cautious until witnessing a daily close beyond the 200-DMA level of 0.7600.