- AUD/USD regains some positive traction on Monday and breaks a two-day losing streak.
- A combination of factors is keeping dollar bulls on the defensive and offering some support to the pair.
- Traders await the US ISM PMI to gain some momentum ahead of Tuesday’s RBA.
The AUD/USD attracts some buying near the 0.6400 level on Monday and maintains its buying tone during the first half of the European session. The pair, for now, seems to have snapped a two-day losing streak. and is currently trading near 0.6450up 0.70% on the day.
A combination of factors puts some downward pressure on the US dollar, which in turn offers some support to the AUD/USD pair. UK Finance Minister Kwasi Kwarteng confirmed that his government will not go ahead with the plan to scrap the 45% income tax rate, providing a modest boost to sterling.. This, along with falling US Treasury yields, keeps dollar bulls on the defensive.
In fact, the bonus Benchmark 10-year US Treasury moves off 12-year highs achieved last Wednesday. Apart of this, the signs of stability in the financial markets, as evidenced by the positive tone around US stock markets, further weaken the safe-haven US dollar and benefit the risk-sensitive Aussie. That said, a lack of continuation in USD selling warrants caution for aggressive bulls.
Traders now seem reticent and might prefer to stay on the sidelines ahead of Tuesday’s key Reserve Bank of Australia policy decision. Meanwhile, growing acceptance that the Federal Reserve will continue to raise interest rates at a faster pace should act as a tailwind for US bond yields and limit the dollar’s decline. This, in turn, could cap the AUD/USD upside.
Therefore, it will be prudent to wait for strong continuation buying before positioning for any further short-term upside. Market participants now await the US IM Manufacturing PMI to be released later in the American session. This coupled with US bond yields and broader risk sentiment will weigh on the dollar and provide some lift to the AUD/USD pair.
AUD/USD technical levels
Source: Fx Street
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