AUD/USD struggles around 0.6400, Aussie Retail Sales, China PMI and RBA vs. Fed divergence eyed

• AUD/USD stays indecisive, grinding lower, despite posting two-week uptrend.
• Market sentiment dribbles even as Dow Jones braces for the best month since 1976.
• Hopes of RBA’s 0.25% rate hike versus Fed’s 75 bps lift keep sellers hopeful ahead of the key data/events.
• Australia Retail Sales, China PMI could offer immediate directions, risk catalysts may test the buyers.

AUD/USD stays defensive around 0.6400 while portraying the market’s anxiety ahead of the bumper data and the key events. Even so, the bears remain hopeful during the early Monday’s Asian session amid the anticipated divergence among the monetary policy moves between the US Federal Reserve (Fed) and the Reserve Bank of Australia (RBA).

Recently increasing risks from the Russia-Ukraine tussles appeared to have joined the hawkish hopes from the Fed to exert downside pressure on the AUD/USD, due to the pair’s risk barometer status. On the same line are expectations of a softer print of the Aussie Retail Sales for September and likely downbeat China official PMIs for October.

“Russia, which invaded Ukraine on Feb. 24, halted its role in the Black Sea deal on Saturday for an ‘indefinite term’ because it could said it could not ‘guarantee safety of civilian ships’ travelling under the pact after an attack on its Black Sea fleet,” reported Reuters.

Elsewhere, economists at the Goldman Sachs raised Fed rates outlook and saw the peak at 5% in March. On the same line was the CME’s FedWatch Tool that suggests a 80% chance of the Fed’s 75 bps rate hike during Wednesday’s Federal Open Market Committee (FOMC).

Alternatively, Christopher Kent, Assistant Governor (Economic) at the RBA mentioned that the size and timing of rate increases will depend on incoming data. The same joins the Reuters’ poll suggesting the RBA will raise interest rates by a more modest 25 basis points for a second straight month on Tuesday and is set to do so again in December despite the highest inflation in three decades,

That said, Friday’s upbeat prints of the Fed’s preferred inflation gauge, namely the US Core Personal Consumption Expenditures (PCE) Price Index, also challenge the AUD/USD buyers. It should be noted that the inflation gauge rose to 5.1% YoY for September versus 5.2% expected and 4.9% prior.

Against this backdrop, the yields are down and the equities are bracing for a good month with Dow Jones bracing the biggest monthly jump since 1976. The same teases the first monthly gain of the AUD/USD pair in three ahead of Australia’s September month Retail Sales, expected to remain unchanged at 0.6%, as well as China’s NBS Manufacturing PMI for October, likely easing to 50.0 versus 50.1 prior.

Technical analysis

A clear downside break of a two-week-old ascending trend line, around 0.6370 by the press time, appears necessary for the AUD/USD bears to retake control. Also acting as a short-term key support is the 21-DMA level surrounding 0.6360.