- A combination of factors dragged AUD/USD lower for the third day in a row on Monday.
- Bets on a 50 bps Fed rate hike in March supported the dollar amid geopolitical tensions.
- Risk aversion contributed to bearish pressure on the perceived riskier Aussie.
The pair AUD/USD it remained depressed during the early European session and was last seen trading around the 0.7100 mark, just a few pips above a one-week low.
The pair extended last week’s rejection decline from near 0.7250, or the 100-day SMA, and continued to lose ground for the third day in a row on Monday. The US dollar remained well supported by prospects for faster policy tightening by the Federal Reserve. This, coupled with the risk aversion momentum in the markets, weighed on the perceived riskier Australian dollar and put pressure on the AUD/USD pair.
Markets seem convinced that the Fed would adopt a more aggressive policy response to combat stubbornly high inflation and have been pricing in a 50bp rate hike in March. The stakes were raised further after data released last Thursday showed that the US headline CPI accelerated to the highest level since February 1982 during the first month of 2022. Added to this, the core CPI rose to 6.0% from a year ago.
Aside from this, concerns about an impending Russian invasion of Ukraine weighed on global risk sentiment and further benefited the dollar’s relative safe-haven status. This was seen as another factor that dragged the AUD/USD pair below 0.7100. The drop, however, lacked follow-through, warranting some caution for aggressive bear traders and before positioning themselves for further losses.
In the absence of any major market-moving economic releases, traders may take note of St. Louis Fed President James Bullard’s appearance later in the North American session. It is worth remembering that Bullard called for 100bp rate hikes during the next three FOMC policy meetings and therefore his comments, along with US bond yields, will weigh on the USD and give him will give some boost to the AUD/USD pair.
Aside from this, geopolitical developments and broader market risk sentiment should allow traders to take advantage of some short-term opportunities around the AUD/USD pair. The focus would then shift to the RBA Monetary Policy Meeting Minutes, due to be released during the Asian session on Tuesday.
Technical levels
Source: Fx Street
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