- AUD/USD falls to one-week lows on Monday amid strong tracking of dollar buying.
- China’s problems with COVID-19 and geopolitical risks drive demand for the dollar as a safe haven.
- The configuration supports the prospects of a further depreciation movement in the short term for the pair.
The pair AUD/USD extends last week’s pullback from near 0.6800, or one-month highs, and attracts some follow-up selling on Monday. The pair is holding its offered tone throughout the early American session and is currently near 1-week lows just above 0.6600.
The US dollar is gaining traction for the third day in a row and is supported by its rebound from the lowest level since August 12, which, in turn, is seen putting downward pressure on the AUD/USD pair. Better-than-expected US Retail Sales data released last week casts doubt on the inflation-peak narrative. On the other hand, signs of firmness from several Fed officials suggest that the US central bank may still be some way from stopping its tightening cycle and is acting as a tailwind for the dollar.
In addition, the caution prevailing in the markets is an additional stimulus for the dollar, which is a safe haven. Investors remain concerned about headwinds stemming from the worsening COVID-19 situation in China and the imposition of further lockdowns in several financial centers including the capital Beijing and economic hub Shanghai. In addition, fears of a possible escalation of the conflict between Russia and Ukraine affect global risk sentiment and weigh even more on the risk-sensitive Australian.
Meanwhile, concerns about slowing economic activity are contributing to the ongoing decline in copper prices, which is seen as another factor weighing on demand for the resource-linked Australian dollar. Aside from this, speculation that the Reserve Bank of Australia (RBA) will maintain its dovish course favors AUD/USD bears. Therefore, a further drop below 0.6600, to test the strong horizontal support point of 0.6560-0.6550, looks like a clear possibility.
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.
