AUD/USD struggles despite firmer sentiment and bullish iron ore prices

AUD/USD eased on Friday and recovered to 0.7170 ahead of the European session on Monday. The Australian pair initially welcomed market optimism and news of stimulus from Australia and China to reduce daily losses. Nonetheless, market fears over major events to be announced this week appear to be putting pressure on the latest quotes. Australia’s Finance Minister Friedenberg is set to announce an extension to the current government loan guarantee for small businesses, which expires at the end of December, Australian media reported. Meanwhile, Chinese politicians at the annual Central Economic Working Conference promised to use monetary and fiscal policy instruments to stabilize the world’s second-largest economy in 2022.

Also positive for the AUD/USD pair is the rising price of iron ore, the largest export. “The price of iron ore futures in May 2021 will rise more than 5.0% to 671 yuan ($105.46) per ton,” Reuters reported in its Asia session. It’s worth noting that the US Consumer Price Index (CPI) data on Friday showed market sentiment and AUD/USD in favor of market sentiment as inflation data were in line with November expectations. Pair buyers also benefited from lower US inflation expectations, measured at the 10-year breakeven under the St. Louis Federal Reserve (FRED).

However, market fears of signs of faster Fed tightening and rate hikes have fueled political hawks to anticipate the need for further inflation and austerity measures as the widespread spread of the coronavirus in South Africa called Omicron has prompted political hawks. It hasn’t faded yet. In a similar vein, there are discussions about the suspension of production of some Chinese companies in Zhejiang and the delay of Sense Time’s Hong Kong IPO of $767 million.  Under these circumstances, 10-year US Treasury yields hovered around 1.49%, US equities futures rose modestly and Asia Pacific equities mixed at the latest. The absence of significant data/events in China should caution AUD/USD traders ahead, but the collapse of Chinese data on Wednesday could provide intermediate relief for the pair’s optimists ahead of the Fed’s verdict.