- AUD/USD tumbled to the 0.6950 area on Monday, down more than 1.5% on the day and down more than 4.0% in four days.
- The pair is being hit by risk flows as markets price in a tougher Fed and possible recession.
- China closing fears are also weighing on the pair, with the bears trying to test the support of the 0.6850 low area in the short term.
The AUD/USD tumbled on Monday along with plummeting US and global stock market sentiment as investors increased their bets on the Federal Reserve tightening (in the wake of last Friday’s US inflation data) and on a US recession (following last Friday’s US consumer sentiment figures). The pair was last trading south of the 0.6950 level, having lost more than 1.5% on Monday, bringing its string of losses over the last four sessions to over 4%.
The risk-sensitive Australian dollar is also feeling the pain of renewed fears over lockdowns in China, as both Beijing and Shanghai reinstate restrictions to contain further outbreaks of Covid-19. China is Australia’s largest trading partner and is the main destination for exports of many of the country’s industrial and energy products.
Anyone who has bet on the Aussie rising in the short term in the wake of last week’s RBA rate hike has probably already been held back. This should deter traders from betting on a substantial rebound in the pair should Thursday’s Australian labor market report come out better than expected. In fact, this week the Aussie will continue to trade based on overall risk appetite and dollar inflows.
With risk appetite plummeting on central bank tightening and recession fears, and the US dollar benefiting from the Fed’s hawkish stance and safe-haven status (after all, , is the world’s reserve currency), AUD/USD’s next stop is probably the May low at 0.6850. If it can break below 0.6850, there is not much to stop a run down to around the 2019 lows at the top of 0.6650. The main macroeconomic events of the week will be the US retail sales report for May and the Fed meeting on Wednesday, with some calling for the bank to invoke a Volcker moment and surprise with a rate hike. 75 or 100 basis points.
Technical levels
Source: Fx Street
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