AUD/USD Pulls Back From 1-Week Highs, Fall Looks Limited Amid Dollar Weakness

• AUD/USD moves lower on Friday, although the intraday slide has no continuation.
• COVID-19 woes in China weigh on investor sentiment and the Aussie.
• The sell bias around the USD offers support and caps the pair’s decline.

The pair AUD/USD it fails to capitalize on the gains recorded in the last three sessions and retreats from the one-week highs at 0.6780 reached this Friday. The pair is trading slightly negative at the start of the European session and is currently sitting around the 0.6750 level, although a further pullback looks unlikely.

The concern for the worsening of the COVID-19 situation in China keeps the recent bullish movement in the markets at bay, which in turn acts as a headwind for the risk-sensitive Aussie. In fact, China announced restrictions in several major cities in the wake of a record rise in daily COVID-19 cases. This, in turn, adds to the concern about a further slowdown in economic activity and tempers investor appetite for riskier assets.

However, the AUD/USD pair’s slide remains muted, at least for now, amid the bearish sentiment surrounding the US dollar. The minutes of the November FOMC meeting, released on Wednesday, revealed that a substantial majority of policymakers believed that a slower rate hike would soon be appropriate. This leads to a continuation of the recent decline in US Treasury yields and continues to weigh on the dollar.

The mixed fundamental background warrants some caution before positioning for a firm near-term direction for the AUD/USD pair. Furthermore, relatively thin trading volumes could further discourage traders from entering aggressive positions and support prospects for an extension of the consolidation move on the last day of the week.

AUD/USD technical levels