- AUD / USD is moving higher on Friday and recovers a portion of the previous day’s losses.
- Nervousness over covid-19 continues to act as a headwind for the AUD and limits the pair’s gains.
- The rally in US bond yields could prop up the USD and favor the pair’s bears.
The pair AUD/USD moves with a slight positive bias during the European session on Friday, although lacks any follow-on purchases. At the time of writing, the pair is trading at 0.7428, up 0.07% on the day.
The pair has managed to find some support near the 0.7420 region, just above the annual lows and has moved higher on the last trading day of the week, recovering a part of the losses of the previous day. However, a combination of factors has prevented the bulls from opening aggressive positions and limited the rise of the AUD / USD pair.
Investors follow concerned about the spread of the Delta variant highly contagious from coronavirus. In fact, the Australian state of Victoria has been blocked for five days Thursday after a spike in COVID-19 infections, which, in turn, has acted as a headwind for the AUD / USD pair.
Meanwhile, nervousness over COVID-19 has continued weighing on investor sentiment and has benefited the safe-haven US dollar, which has also been supported by a modest rebound in US Treasury yields. This has been seen as another factor that has contributed to limiting gains for the higher perceived risk AUD.
Aside from this, optimistic expectations from the Fed have further propped up the USD. Despite pessimistic testimony from Fed Chairman Jerome Powell, investors seem convinced that the US central bank will tighten its monetary policy ahead of schedule amid mounting inflationary pressure.
The fundamental backdrop appears tilted in favor of the bears and supports the prospects for a further downside in the short term for the AUD / USD pair. Therefore, any subsequent move to the upside could still be seen as a selling opportunity and risks being exhausted quite quickly.
Even from a technical perspective, the in-range price action witnessed over the past two weeks constitutes the formation of a rectangle on the daily chart. Given the recent drop to June’s monthly highs, this could still be classified as a bearish continuation pattern.
A convincing break below the 0.7400 level will reaffirm the negative outlook and set the stage for further losses in the AUD / USD pair. Market participants are now awaiting the release of US retail sales data for further momentum at the start of the US session today.
AUD / USD technical levels
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