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  • AUD/USD struggled to capitalize on its attempted recovery from near two-month lows.
  • A positive risk tone extended some support, sustained USD buying capped the upside.
  • Investors look forward to the US Q4 GDP report, Fed speaks for a fresh trading impetus.

The AUD/USD pair held on to its modest recovery gains through the early European session, albeit seemed struggling to build on the momentum beyond the 0.7600 mark.

The pair managed to gain some positive traction on Thursday and recovered a part of the previous day’s losses to the lowest level since early February, around the 0.7580-75 region. A generally positive tone around the equity markets was seen as one of the key factors that extended some support to the perceived riskier aussie. However, a combination of factors kept a lid on any meaningful upside for the AUD/USD pair.

Investors remain concerned about a further escalation in diplomatic tensions between China and Western countries. It is worth reporting that the US, the EU, Britain and Canada – in a rare, coordinated move – imposed sanctions on Chinese officials on Monday for human rights abuses in Xinjiang. China hit back immediately with punitive measures against the EU, which, in turn, might weigh on the China-proxy Australian dollar.

On the other hand, the US dollar continued benefitting from the prospects for a relatively faster US economic recovery from the pandemic. In fact, the key USD Index climbed to four-month tops on Thursday and got an additional boost from a pickup in the US Treasury bond yields. This was seen as another factor that held bulls from placing any aggressive bets around the AUD/USD pair and capped gains, at least for now.

Meanwhile, the lack of any follow-through buying suggests that the near-term bearish trajectory might still be far from being over. The negative outlook is further reinforced by the fact that the AUD/USD pair has confirmed a near-term bearish breakdown through a head and shoulders neckline support earlier this week. Hence, any meaningful recovery attempt might still be seen as an opportunity for bearish traders.

Market participants now look forward to the release of the final US Q4 GDP print, due later during the early North American session. This, along with scheduled speeches by a slew of FOMC member and the US bond yields, will influence the USD price dynamics. Apart from this, the broader market risk sentiment might also contribute to produce some short-term trading opportunities around the AUD/USD pair.

Technical levels to watch