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  • A co-ordinated sanctioning of Chinese officials prompted fresh selling around AUD/USD.
  • Geopolitical tensions in the Korean peninsula also weighed on the perceived riskier aussie.
  • A sustained breakthrough below the 0.7700 mark should pave the way for further weakness.

The AUD/USD pair refreshed session lows in the last hour, with bearish traders now awaiting a sustained break below strong horizontal support near the 0.7700 mark.

The pair witnessed some heavy selling during the Asian session on Tuesday in reaction to the rare coordinated Western action against China. The US, the EU, UK and Canada imposed sanctions on Chinese officials for human rights abuses in Xinjiang. China hit back immediately with punitive measures against the EU and further escalated diplomatic tensions.

Apart from this, reports that North Korea is deploying multiple rocket launchers on the inter-Korean border islet of Chagrin took its toll on the global risk sentiment. This, in turn, was seen as another factor that forced investors to take refuge in the safe-haven US dollar and further collaborated to drive flows away from the perceived riskier aussie.

The greenback was further supported by the prospects for a relatively faster economic recovery from the pandemic. The upbeat economic outlook was reaffirmed by Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen, in their prepared remarks for delivery to the US House of Representatives Financial Services Committee on Tuesday.

Despite the negative factors, the AUD/USD pair, so far, has managed to defend the 0.7700 round-figure mark. A sustained breakthrough will mark a near-term bearish breakdown and set the stage for an extension of the recent sharp pullback from monthly tops, around mid-0.7800s touched in the aftermath of dovish-sounding FOMC statement last Wednesday.

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