- AUD/USD rebounds from its lowest level since May 2020 amid a modest intraday pullback in the USD.
- Recession fears and expectations of aggressive rate hikes from the Fed will limit USD losses and limit the pair’s rise.
- Investors are now awaiting speeches from FOMC members for short-term opportunities.
The pair AUD/USD recovers modestly from its lowest level since May 2020, established earlier this Monday, although it lacks continuation purchases. The pair fluctuated between tepid gains and small losses during the early part of the European session and is currently trading just above the psychological level of 0.6500.
In fact, the dollar index, which measures the dollar’s performance against a basket of currencies, gave up intraday gains to hit a new two-decade high, offering some support to the AUD/USD pair. The speculation that the Bank of England will have to intervene to stabilize the national currency helped the pound sterling rebound quickly after two days of free fall. This coupled with a change in risk sentiment triggers some profit taking around the safe haven dollar, benefiting the risk sensitive Aussie.
Having said that, growing concerns about a deeper global economic recession and the risk of a further escalation in the conflict between Russia and Ukraine should curb any bullish moves in the markets. Additionally, the Fed’s more hawkish stance should cap any significant corrective pullback in the dollar and limit AUD/USD’s gains. It’s worth remembering that the US central bank carried out another large-scale rate hike last week and signaled big hikes at its upcoming meetings to rein in inflation.
The fundamental background suggests that the path of least resistance for the AUD/USD is to the downside. This makes it prudent to wait for strong continuation buying before confirming that the pair has formed a short-term bottom. In the absence of relevant US economic data, traders will be guided by speeches from influential FOMC members on Monday. This, along with US bond yields and general risk sentiment, could weigh on the dollar and give the AUD/USD pair some lift.
AUD/USD technical levels
Source: Fx Street
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