- AUD/USD remains above support at the 0.7000 zone for now, although it is still substantially lower on the day.
- Global stocks and economic growth-sensitive commodities are under pressure on Monday, weighing on the risk-sensitive Australian dollar/commodities.
- US CPI will be the key event of the week for the pair.
Slightly better than expected, Chinese trade figures for April have done little to offer support to the Aussie on Monday, with the currency momentarily dipping below the 0.7000 level earlier in the day. In doing so, AUD/USD reached new lows since the end of January, although, for now, support in the form of previous yearly lows remains.
Still, at current levels in the 0.7010s, the pair still trades with daily losses of around 0.8% and down around 3.5% from last week’s highs in the mid-0.7200s. The pair has been heavily weighed down in recent days by a combination of factors. First, the US dollar has been solid amid rising US yields as traders brace for a more aggressive Fed tightening cycle in the wake of the week’s Fed policy meeting. pass.
Second, global risk assets (including growth-sensitive equities and commodities) have taken a beating as financial conditions tighten (i.e., yields rise) and market participants worry about the central bank tightening amid high inflation and slowing global growth amid ongoing Russia-Ukraine War and closures in China. This, unsurprisingly, has hit the risk/commodity sensitive Australian dollar hard in recent sessions.
As long as past trends continue, the RBA’s recent shift towards monetary tightening (they surprised markets with a 25bps hike in rates last week and rates are expected to hit 3.0% by the end of the year) are likely to cannot avoid further losses. A break below the yearly lows below 0.7000 would open the door for a move lower towards the next key long-term support area around 0.6800.
AUD/USD traders will want to watch for a barrage of comments from Fed policymakers this week that could help shape expectations for US monetary policy. But the main event of the week will be the release of US consumer price inflation (CPI) data on Wednesday. Soaring inflation has been the key motivator for the Fed’s recent hawkish line change. If the recent rally in US yields and the US dollar subsides, traders will want to see evidence of easing inflationary pressures. .
Technical levels
Source: Fx Street
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