AUD / USD recovers from initial drop to week-long lows, steady around 0.7125-30

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  • AUD / USD draws in some lower level buying on Tuesday and reverses an initial slide below the 0.7100 level.
  • Signs of stability in the stock markets offer some support to the perceived riskier AUD.
  • Nervousness around Covid-19 should limit the pair’s gains amid modest USD strength ahead of the key FOMC decision.

The pair AUD / USD has managed to fully recoup its intraday losses and is rebounding to the 0.7125-30 region during the European session on Tuesday.

The pair extended the previous day’s retracement slide, from the 0.7175-80 region or a two-week high, and witnessed some selling during the early part of trading on Tuesday. The intraday slide was due to a combination of factors, although the bulls showed some resistance below the round 0.7100 level.

Renewed concerns about economic risks from the spread of the Omicron variant they continued to weigh on investor sentiment. This, along with an increase in daily coronavirus cases in Australia’s largest state by population (New South Wales), weighed on the perceived riskiest Australian dollar amid a modest strength in the US dollar.

The USD remained strong near the one-week high and was supported by firm expectations that the Fed would tighten its monetary policy sooner rather than later to contain stubbornly high inflation. In fact, money markets indicate the possibility of an eventual rate hike for June 2022 and another hike as early as November.

However, the decline remains supported, as investors appear reluctant to open aggressive positions and prefer to wait for the outcome of the FOMC monetary policy meeting two days. Apart from this, signs of stability in the stock markets helped the AUD / USD pair to attract some buying at lower levels, near the 0.7090 region.

Market participants are now awaiting the release of the US IPP producer price index, which will be released at the start of the American session. Investors will also take cues from broader market risk sentiment to seize some short-term opportunities around the AUD / USD pair ahead of Chinese data on Wednesday.

Meanwhile, attention will turn to the FOMC’s decision, which is due to be announced on Wednesday. The Fed is widely expected to signal a quicker liquidation of its monthly bond buying program and move one step closer to raising rates. This, in turn, will set the USD price action and determine the short-term trajectory for the AUD / USD pair.

AUD / USD technical levels

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