- AUD/USD comes under some selling pressure on Monday and hits a new daily low at the start of the European session.
- A weaker tone around equity markets puts pressure on the risk-sensitive Aussie.
- Expectations of lower Fed rate hikes keep the USD under pressure and should help limit the pair’s losses.
The pair AUD/USD It attracts some sellers after an initial rally to the 0.7120 area and remains on the defensive at the start of the European session on Monday. The pair falls to three-day lows, around the 0.7070 zone in the last hour, although a significant drop seems unlikely.
A softer risk tone, as shown by weaker sentiment around stock markets, is seen as a key factor driving money flows away from the risk-sensitive Aussie. Despite China relaxing its strict zero-Covid policy in December, the country’s worst-ever outbreak of COVID-19 has fueled uncertainty about a strong economic recovery. This, in turn, tempers investors’ appetite for riskier assets and keeps any optimism in the markets at bay.
As for the AUD/USD pair, Falls are likely to remain supported, at least for now, against a weak dollar backdrop. In fact, the DXY dollar index, which measures the strength of the dollar against a basket of currencies, is weakening near its lowest level in nine months, amid some increasingly firm expectations of less aggressive monetary policy tightening by the Fed. Markets seem convinced that the US central bank will soften its hawkish stance and expect a smaller rate hike of 25 basis points on Wednesday.
Expectations were bolstered by the release of US Personal Consumption Expenditure (PCE) data on Friday, which showed that the price index Core PCE fell at a 4.4% yoy rate in December, compared to the previous 4.7%. That said, other recent US macroeconomic data points to a resilient economy and supports the idea that the Fed will remain hawkish for longer. Therefore, attention will remain focused on the outcome of the two-day FOMC meeting, which could provide clues to future rate hikes.
On the eve of the central bank meeting, traders may refrain from opening aggressive positions and prefer to stay on the sidelines. Apart from this, the Increasing odds of a new Reserve Bank of Australia (RBA) rate hike in February could support the Australian dollar and help limit any significant corrective pullbacks for the AUD/USD pair. Therefore, it is prudent to wait for strong selling before confirming that the pair has topped out.
Technical levels to watch
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
