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  • AUD/USD stalled its positive move near the 0.7200 mark and witnessed a modest pullback.
  • A modest USD short-covering move was seen as a key factor that prompted some profit-taking.
  • The risk-on mood continues to benefit the perceived riskier aussie and helped limit the downside.

The AUD/USD pair extended its steady intraday pullback from seven-week tops and dropped to fresh daily lows, around the 0.7265 region in the last hour.

The pair failed to capitalize on its early uptick, instead faced rejection near the 0.7300 round-figure mark and witnessed some intraday profit-taking amid a modest US dollar rebound. As investors digested the Democratic candidate Joe Biden’s victory at a nail-biting US presidential election, oversold conditions on short-term charts prompted some short-covering around the greenback. This, in turn, was seen as a key factor that exerted some pressure on the AUD/USD pair.

Meanwhile, the USD uptick lacked any obvious fundamental catalyst and runs the risk of fizzling out rather quickly. The possibility of a split Congress now seemed to fuel speculations that the Fed will be forced to ease further in order to support the economy amid the continuous rise in COVID-19 cases. Dovish Fed expectations should hold the USD bulls from placing any aggressive bets, which should eventually lend some support to the AUD/USD pair and help limit deeper losses.

Apart from this, the prevalent risk-on environment – as depicted by a strong follow-through rally in the equity markets – could further benefit the perceived riskier Australian dollar. Hence, any subsequent fall might still be seen as a buying opportunity and is more likely to remain limited amid absent relevant market-moving US economic releases on the first day of a new trading week.

Technical levels to watch