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  • AUD/USD turned south after testing 0.7300 on Tuesday.
  • US Dollar Index rose to its highest level in more than two weeks.
  • Risk aversion helps USD gather strength against its rivals.

The AUD/USD pair registered small losses on Monday and recovered to 0.7300 area during the Asian session. However, the risk-off market environment and the broad-based USD strength forced the pair to reverse its direction. As of writing, AUD/USD was down 0.25% on the day at 0.7255.

AUD struggles to find demand amid heightened US-China tensions

Although US markets were closed due to the Labor Day Holiday on Monday, US President Donald Trump’s comments triggered a new bout of flight-to-safety. Trump said there was a possibility of the US economy decoupling from China and announced that they will prohibit federal contracts to companies that outsource to China. 

Reflecting the negative market sentiment, which weighs on the risk-sensitive AUD, major European equity indexes are down between 0.4% and 1.35% on the day and the S&P 500 futures are down 0.55%.

On the other hand, the US Dollar Index (DXY) continues to push higher and builds on the five-day winning streak on Tuesday. Earlier in the session, the DXY touched its highest level since August 21st at 93.43 and was last seen gaining 0.25% on the day at 93.29.

In the early trading hours of the Asian session on Wednesday, Westpac Consumer Confidence Index, Home Loans and Investment Lending for Homes data will be featured in the Australian economic docket.

Technical levels to watch for