AUD/USD: Bulls catch a breather at highest since March 2018, keep eyes on 0.7900

  • AUD/USD begins the week with a gap-up but stays near the multi-month high flashed Friday.
  • Risks flash mixed signals as equities, US dollar dwindle but the Treasury yields in major countries remain strong.
  • Upbeat PMIs, unlock news from UK and Israel favor market sentiment, Fed’s caution and mixed US data probe the bulls.
  • No major data on the calendar, risk news to keep the reins.

AUD/USD kick-starts trading week with a north-side gap, from 0.7867 to 0.7875, currently around 0.7872, during the early Monday morning in Asia. The aussie pair marked the heaviest intraday gains on Friday while rising to the fresh high since March 2018 amid risk-on mood and the US dollar weakness. However, a lack of major catalysts and a light calendar seems to restrict the risk barometer’s moves off-late.

Greenback weakness backs rally as virus-led fears ease…

US dollar index (DXY) marked its second consecutive negative weekly closing for the first time in 2021 despite the jump in the US 10-year Treasury yields. While reflation fears should have backed the US currency, due to its safe-haven nature, receding fears of the coronavirus (COVID-19) seemed to have tamed the greenback bulls. Given the steady increase in the covid vaccinations and easing virus-led activity restrictions at home and abroad, the market optimism seems to return to the desk. Also favoring the risks could be the hopes of US President Joe Biden’s $1.9 trillion covid relief stimulus that’s likely to be discussed in the House this week.

Other than the risk-on catalysts, the US Federal Reserve’s consideration for business risks, cited in the latest semi-annual report exert additional downside pressure on the US dollar.

Elsewhere, the removal of lockdown in Australia and the start of vaccinations join China’s support for easy money policies that favor the Australian dollar. That said, the People’s Bank of China (PBOC) kept 1-year and 5-year Lending Prime Rate (LPR) at 3.85% and 4.65% over the weekend, matching market expectations.

Against this backdrop, US equity benchmarks marked downbeat prints, staying near record top, while global bond yields jumped to the highest in a year.

Considering a lack of major data/events, AUD/USD trades should keep their eyes on the risk news for fresh impulse. Among them, news of the US COVID-19 relief package and further easing of virus-led lockdown should help the bulls.

Technical analysis

March 2018 peak surrounding 0.7920 lures AUD/USD bulls unless witnessing a pullback below January 2021 high near 0.7820.

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