AUD / USD Recovers From Initial Drop Below 0.7600, Still Deep Negative Amid Stronger USD

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  • AUD / USD is witnessing strong selling on Friday and falls to lows of more than a week.
  • A strong rally in US bond yields boosts the USD and puts pressure on the pair.
  • Risk appetite limits losses to the perceived riskiest Australian dollar, for the time being.

The pair AUD/USD has recovered a portion of its intraday losses to lows of more than a week, trading around the 0.7615-20 region and still down 0.50% on the day.

The pair has continued its struggle to break above the 0.7660-70 resistance zone and has witnessed some strong sales on the last trading day of the week. The strong intraday drop of more than 70 pips is due to a cautious tone seen in the RBA’s financial stability report and resurgent demand for the US dollar.

In its semi-annual report on financial stability, the RBA has raised concerns about rising house prices driven by debt. This, along with mixed Chinese inflation figures, has weighed on the Australian dollar. The data indicated that the post-pandemic recovery in domestic consumption has not yet accelerated in the world’s second-largest economy.

On the other hand, a sharp intraday rise in US Treasury yields has allowed the USD to post a solid rally from lows of more than two weeks. Despite a stubbornly pessimistic Fed, the market has been pricing in a rate hike by the end of 2020 amid prospects for a relatively faster economic recovery from the pandemic in the United States.

The optimistic US economic outlook has remained Backed by Impressive Coronavirus Vaccination Pace and $ 2 Trillion Infrastructure Spending Plan from US President Joe Biden. This has fueled speculation about a rebound in US inflation and raised doubts that the Fed will maintain ultra-low interest rates.

In the meantime, underlying bullish sentiment in financial markets has limited any further gains for the safe-haven US dollar. This, in turn, has helped the AUD / USD pair to rally around 25-30 pips from the daily lows near the 0.7590-85 region. That said, the short-term bias remains firmly skewed in favor of the bears.

Another sell-off in the US bond market could raise fears in other asset classes. This could act as a headwind for stock markets and drive away money flows from the higher perceived risk of the Australian dollar. This suggests that the path of least resistance for the AUD / USD pair remains to the downside.

AUD / USD technical levels

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