AUD/USD extends recovery from two-year lows and climbs back above 0.6850

• AUD/USD gains some positive traction on Monday amid modest dollar weakness.
• The recent drop in US bond yields and a positive risk sentiment weigh on the USD.
• Repositioning ahead of Tuesday’s RBA decision offers further support.

The pair AUD/USD The new week has started on a positive note and has extended Friday’s late bounce from the 0.6765-0.6760 region, or its lowest level since June 2020. The recovery momentum has extended throughout the first half of the European session and has pushed the pair back above 0.6850. At time of writing, the pair remains in the area of ​​daily highs, around the 0.6880 level, up 0.91% on the day.

Against the background of the recent sharp drop in US Treasury yields, signs of stability in financial markets weighed on the safe-haven US dollar. This, in turn, was seen as a key factor providing some support for the risk-sensitive Aussie. Apart from this, some operations of repositioning ahead of Reserve Bank of Australia monetary policy meeting on Tuesday caused traders to lighten their bearish positions on the AUD/USD pair.

That said, the prospects for a More aggressive Fed monetary policy tightening and growing recession fears should act as a tailwind for the USD. This, coupled with falling commodity prices, should curb any significant rise in the Australian dollar. Therefore, it is prudent to wait for strong continuation buying before confirming that the AUD/USD has formed a short-term bottom and positioning for further gains.

US markets will be closed on Monday to celebrate Independence Day. Therefore, the focus will be on the RBA policy decision, to be announced during the Asian session on Tuesday. In addition, the minutes of the FOMC monetary policy meeting will be published on Wednesday. Also, the monthly US Employment Report (NFP), to be released on Friday, will help determine the short-term path of the AUD/USD pair.

AUD/USD technical levels