- A combination of factors triggered new selling around AUD / USD on the first day of a new week.
- Omicron’s fears acted as a headwind for the Australian dollar perceived as riskier amid resurgent demand for the USD.
- Investors could refrain from aggressive bets amid tight end-of-year liquidity conditions.
The pair AUD/USD it extended its steady intraday decline and fell to a two-day low around the 0.7200 round level during the middle of the European session.
The pair struggled to capitalize on its initial rally, instead encountering a fresh offer near the 0.7240 region and declining for the second day in a row on Monday. Uncertainty about the economic impact of the continued rise in new COVID-19 cases overshadowed recent optimism led by reports that the Omicron variant could be less severe than previously feared. This was evident by the cautious mood in the market, which in turn drove flows away from the perceived riskier Aussie.
Meanwhile, concerns that the fast-spreading variant and new restrictive measures could result in disrupted supply chains across all industries provided a modest boost to the safe-haven US dollar. Apart from this, the aggressive outlook from the Fed, which indicates at least three rate hikes next year, propped up the dollar. This was seen as another factor that put pressure on the AUD / USD pair and dragged the pair’s prices away from a nearly a month high, around 0.7250 touched last Thursday.
Traders, however, seemed reluctant to make aggressive bets amid tight end-of-year liquidity in the markets and the absence of relevant economic releases in the market. This, in turn, could help limit any further declines for the AUD / USD pair, justifying some caution for aggressive bearish traders. Therefore, it will be prudent to wait for a strong follow-up sell before confirming that the recent bounce from the key psychological level 0.7000, or the yearly low, has been exhausted.
From a technical perspective, any subsequent decline below 0.7200 is likely to find some support near the strong breaking point of horizontal resistance at 0.7180. A convincing break below would be considered a new trigger for bearish traders and would make the AUD / USD vulnerable to accelerate the slide towards the challenge of the round figure of 0.7100. Conversely, a sustained strength beyond the 0.7240-50 region should pave the way for a further short-term appreciation move.
Technical levels
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