- AUD/USD gained traction for the second day in a row amid the ongoing USD corrective pullback.
- As the chances of the Federal Reserve raising rates more aggressively diminished, the boost in risk appetite weakened the dollar.
- The breakout of the downtrend channel contributed to the strong positive intraday move.
- Traders are now keeping an eye on Tuesday’s US Reserve Bank (RBA) Minutes, amid the absence of any relevant US economic data on Monday.
The pair AUD/USD gained positive traction for the second day in a row on Monday and recovered further from a more than two-year low around the 0.6680 region touched last week. The momentum lifted the pair to a one-week high, around the 0.6835-0.6840 area during the first half of the European session, and was fueled by ongoing US dollar profit-taking.
Fed Governor Christopher Waller and Saint Louise Fed President James Bullard, the Fed’s biggest hawks, declared last Thursday that they were not in favor of further rate hikes. Additionally, Atlanta Fed President Raphael Bostic warned on Friday that too drastic a move could undermine the positives in the economy and add to uncertainty. This, in turn, forced investors to lower their expectations of a 100 basis point Fed rate hike in July, triggering profit-taking in the dollar from its two-decade high.
Aside from this, the risk appetite boost – as shown by strong gains in global equity markets – led to an extension of the dollar’s corrective pullback and benefited the risk-sensitive Aussie. The momentum helped the AUD/USD pair to overcome the downtrend channel hurdle from a month ago. This, in turn, was seen as another factor providing an additional boost to spot prices. However, growing recession fears coupled with rising COVID-19 cases in China prevented China’s surrogate Australian dollar from rising significantly.
In the absence of market-relevant economic releases, the AUD/USD pair remains at the mercy of the dollar’s price dynamics. Aside from this, traders will take cues from the broader market risk sentiment to take advantage of short-term opportunities. However, the focus will be on the Minutes from the latest Reserve Bank of Australia policy meeting, due for release on Tuesday.
Technical levels
Source: Fx Street
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