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  • A combination of factors prompted some fresh selling around AUD/USD on Monday.
  • Powell’s upbeat comments lifted the USD; a softer risk tone weighed on the aussie.
  • The emergence of dip-buying warrants some caution for aggressive bearish traders.

The AUD/USD pair remained depressed through the early European session, albeit has managed to rebound around 20 pips from daily swing lows. The pair was last seen trading around the 0.7610 region, down 0.10% for the day.

The pair witnessed some selling on the first day of a new trading week and was pressured by a combination of factors. The US dollar found some support from Fed Chair Jerome Powell’s optimistic comments. This, along with a slight deterioration in the global risk sentiment, further drove some haven flows towards the greenback and weighed on the perceived riskier Australian dollar.

During an interview with 60 Minutes, Powell said that the US economy is set to make a turnaround and increased growth should provide more jobs. This reinforced the market expectations for a relatively faster US economic recovery from the pandemic, thanks to the impressive pace of coronavirus vaccinations and US President Joe Biden’s over $2 trillion infrastructure spending plan.

Powell further added that the Fed wants inflation moderately above 2% for some time but does not want it to go materially above 2%. It is worth mentioning that the reflation trade has been fueling speculations about a potential uptick in US inflation and raised doubts that the Fed will retain ultra-low interest rates for a longer period, which also acted as a tailwind for the USD.

News that one of Iran’s nuclear facilities was hit by a terrorist act dented investor’s appetite for perceived riskier assets and benefitted traditional safe-haven assets, including the USD. Despite the negative factors, the AUD/USD pair once again showed some resilience below the 0.7600 mark. This, in turn, warrants some caution before positioning for any further near-term depreciating move.

Even from a technical perspective, the AUD/USD pair has been oscillating in a broader trading range over the past three weeks or so. This further makes it prudent to wait for a sustained break in either direction in order to confirm the near-term trajectory. The market focus will remain glued to the release of the latest US consumer inflation figures, scheduled on Tuesday.

Technical levels to watch

 

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