AUD/USD aims to test 0.6500 despite weaker China Trade Balance data

• AUD/USD is marching towards 0.6500 amid a risk-on market impulse.
• Weaker China’s Trade Balance data have not brought volatility for the Aussie bulls.
• The extent of change in price growth will determine whether Fed will hike its proposed terminal rates.

The AUD/USD pair has resurfaced after dropping to near 0.6408 in Asia. The Aussie bulls have got strengthened despite weaker China’s Trade Balance data. The exports rose by 7.0% last month vs. 14.8% expected and 10.7% previous while, imports climbed by 6.8% vs. 6.0% expected and 5.2% the prior release.

Activities in the Chinese economy have dropped leading to strict Covid-19 measures. Restrictions on the movement of men, materials, and machines to contain the pandemic mess have trimmed the extent of economic activities. It is worth noting that Australia is a leading trading partner of China and Chinese Trade activities have a significant impact on the Aussie dollar.

The market sentiment is displaying signs of recovery as the US dollar index (DXY) is displaying a subdued performance. The DXY is trading lackluster above 111.00 as investors have shifted their focus to the inflation data, which will release on Thursday.

Apart from that, a significant decline in odds for a fifth consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed) has restricted the DXY’s upside. As per the CME FedWatch tool, the odds favoring a continuation of a bigger rate hike stand at 38.5%.

As a deviation in current borrowing rates and Fed’s proposed terminal rates have declined significantly, the extent of change in Consumer Price Index (CPI) data will determine whether the Fed will increase the peak for terminal rates or will leave them unchanged. As per the preliminary estimates, the headline CPI is seen lower at 8.0% vs. the prior release of 8.2%. While the core CPI that excludes oil and food prices is seen lower at 6.5% against 6.6% recorded earlier.