- AUD/USD regains some positive traction on Monday amid broader USD weakness.
- The pullback in US bond yields, coupled with the risk boost, weighs on the greenback as a haven.
- Disappointing macro data from the US adds to the dollar’s selloff and provides an additional boost.
The pair AUD/USD continues its intraday rise and reaches a new daily high around the 0.6285 area during the early American session.
The US dollar is again under selling pressure on Monday, which in turn helps the AUD/USD pair attract some buying near 0.6200 and recover a significant part of Friday’s losses. The decline in US Treasury yields turns out to be a key factor weighing on the dollar. Aside from this, the risk boost, represented by a strong rally in equity markets, further undermines the safe-haven dollar and benefits the risk-sensitive Aussie.
Intraday dollar selling picks up in reaction to the disappointing release of the Empire State Manufacturing Index, which fell to -9.1 in October from -1.5 the previous month. That said, a combination of factors could hold back traders from placing aggressively bullish bets on the AUD/USD pair. Investors remain concerned about potential economic headwinds from rapidly rising borrowing costs and geopolitical tensions.
Additionally, China’s “COVID-zero” policy has fueled concerns of a deeper global economic downturn and should dampen any bullish moves in the markets. Aside from this, the prospect of more aggressive Fed tightening should limit dollar losses and cap AUD/USD gains. In fact, markets have priced in an almost 100% chance of another 75 basis point Fed rate hike at the November policy meeting.
This, coupled with the Reserve Bank of Australia’s (RBA) decision to slow the pace of policy tightening earlier this month, suggests that the path of least resistance for AUD/USD is to the downside. Therefore, the ongoing recovery move could continue to be seen as a selling opportunity and risks fading quickly.
Market participants are now awaiting the minutes of the RBA’s monetary policy meeting and macroeconomic data from China, due to be released during the Asian session on Tuesday. This will boost the Australian dollar, which is a proxy for China, and provide a significant boost to the AUD/USD pair. Meanwhile, the dollar’s price dynamics will continue to play a key role in influencing the pair and will allow traders to take advantage of short-term opportunities.
Technical levels to watch
Source: Fx Street
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