- Risk aversion weighed on the higher perceived risk AUD and dragged the pair to a one-year lows on Tuesday.
- Nervousness over COVID-19 affects global risk sentiment and triggers a slide in stock markets.
- The decline in US bond yields weighs heavily on the USD and helps limit the pair’s losses.
The pair AUD / USD has recovered a portion of its intraday losses to the lowest level since November 2020 at 0.7092. At time of writing, the pair is recovering to 0.7123, still losing -0.11% on the day.
Concerns about possible economic consequences derived from the spread of a new variant of the vaccine-resistant coronavirus, baptized as Ómicron, unleashed a new global wave of risk aversion. This was evident by a sharp decline in equity markets, which in turn was seen as a key factor driving away cash flows from the perceived riskier Australian dollar. The AUD / USD pair fell below 0.7100, although selling tone around the US dollar helped limit deeper losses, At least for the moment.
The latest events surrounding the coronavirus saga seemed to have lowered market expectations for an early tightening of monetary policies by the Fed. This, coupled with the global flight to safe haven, triggered a sharp drop in US Treasury yields. In fact, the benchmark 10-year US government bond yield fell to a three-week low and came back close to the 1.45% level, which weighed heavily on the USD. This, in turn, helped the AUD / USD pair to rally around 25-30 pips.
Having said that, any significant hike still seems elusive amid a more pessimistic stance taken by the Reserve Bank of Australia. Furthermore, the inability of the AUD / USD pair to attract buyers suggests that the short-term downtrend seen in the last month is still far from over. Therefore, recovery attempts could continue to be viewed as a selling opportunity and risk ending fairly quickly near the 0.7155-60 resistance zone, the weekly high set the previous day.
Market participants are now awaiting the US economic calendar, which highlights the publication of the Chicago PMI and the Conference Board’s consumer confidence index at the start of the US session. However, the focus will be on Fed Chairman Jerome Powell’s testimony before the Senate Banking Committee. Powell’s comments will influence expectations about the Fed’s next monetary policy move and boost demand around the USD, which in turn could create short-term opportunities around the AUD / USD pair.
AUD / USD technical levels
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