AUD / USD sharply retreats from week-long high, bears flirt with 0.7100 level

• AUD / USD cannot capitalize on its positive intraday move to more than a week high.
• RBA’s pessimistic expectations prevent bulls from opening aggressive new positions and limiting the pair’s rally.
• Cautious sentiment further pushes cash flows out of the higher perceived risk AUD.

The pair AUD/USD has rapidly retraced more than 50 pips at the start of the American session on Friday and has fallen to new daily lows, around the 0.7100 level.

Having found some support near the round 0.7100 level, the pair regained some positive traction and extended the recovery movement this week from the 0.7020 region, a four-week lows hit on Tuesday. The rebound was exclusively due by the emergence of new sales around the US dollar.

The positive news of the first approved treatment for the coronavirus boosted investor confidence and weighed on the demand for the dollar’s safe haven. The USD was further pressured by speculation of a strong Democratic victory in the upcoming US elections.

Intraday positive momentum pushed AUD / USD to fresh one-week highs, around 0.7155-60, although the RBA’s pessimistic expectations limited any further gains. Investors follow convinced that the RBA will cut rates in November, which in turn triggered new sales at higher levels.

Meanwhile, the last leg of the sudden drop has lacked an obvious catalyst and could be attributed to a modest rally in the USD following the release of the US PMI figures In fact, Markit’s preliminary reading of the Manufacturing PMi for The US rose to 53.3 in October from 53.2 in the previous month, while the indicator for the services sector beat market expectations and jumped to 56 points during the reported month.

Apart of this, Underlying cautious sentiment in stock markets further pushed money flows away from the Australian dollar higher perceived risk, which has contributed to the intraday decline. Now it will be interesting to see if the AUD / USD pair is able to find some support at lower levels or if a convincing break below the 0.7100 level sets the stage for a pullback towards challenging the key psychological level of 0.7000.