- AUD/USD starts the week on a weak note, albeit without continued selling.
- The recent drop in commodity prices and China’s economic concerns have been a headwind for the AUD.
- Risk appetite weighs on the safe-haven USD and helps limit losses for the pair.
The pair AUD/USD has struggled to take advantage of Friday’s nice rebound from levels below 0.6900 and has been met with fresh selling on the first day of a new week. The pair maintains its selling tone during the first half of the European session and now trading around the 0.6920 area, just a few pips above the daily low.
The recent drop in commodity prices is a key factor weighing on the Australian dollar, a currency linked to commodity prices. Another factor adding downward pressure on the pair is the fact that Chinese economy faces headwinds amid resurgence in COVID-19 cases. That said, a combination of factors has also prevented investors from opening aggressively bearish positions in the AUD/USD pair, helping to limit deeper losses.
Investors have turned bullish on the hope that inflation is nearing its peak and now seem to have lowered their expectations of more aggressive rate hikes by the Fed. This was reinforced by a sharp corrective pullback in US Treasury yields, which kept dollar bulls on the defensive. In addition, the Generally positive risk tone in equity markets further weighed on USD haven and offered some support to the risk-sensitive AUD.
From the technical point of view, the appearance of fresh selling at higher levels suggests that the recent bearish trajectory seen since the beginning of this month is still far from over. Therefore, a further drop towards the monthly low around the 0.6850 region now looks like a possibility. The AUD/USD pair could extend the decline and eventually challenge the year’s low around the 0.6830-0.6825 zone hit in May.
Market participants now await the US economic calendar, with the release of Durable Goods Orders and Pending Home Sales data later in the American session. This, along with US bond yields, will influence dollar price dynamics and give the AUD/USD pair some momentum. Investors will follow signals from the broader risk sentiment to take advantage of some short-term opportunities around the pair.
AUD/USD technical levels
Source: Fx Street
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