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  • The prevalent upbeat market mood extended some support to AUD/USD on Monday.
  • Surging US bond yields revived the USD demand and capped the upside for the pair.

The AUD/USD pair lacked any firm directional bias on Monday and remained confined in a range, around the 0.7670-80 region through the early European session.

A combination of diverging forces failed to assist the pair to build on Friday’s strong positive move to one-week tops, instead led to a subdued/range-bound price action on the first day of a new week. The prevalent upbeat market mood drove some flows towards the perceived riskier aussie, while a modest pickup in the US dollar demand kept a lid on any meaningful gains for the AUD/USD pair.

Progress in coronavirus vaccinations continued fueling hopes for a strong global economic recovery. This, along with the increasing likelihood for a massive US fiscal stimulus plan, further boosted investors’ confidence. This was evident from the ongoing risk-on rally in the equity markets, which, in turn, extended some support and helped limit the downside for the AUD/USD pair.

Meanwhile, expectations for a larger government borrowing to fund the stimulus pushed the yield on the benchmark 10-year US government bond to near one-year tops. The continuous surge in the US Treasury bond yields helped revive the US dollar demand, which, in turn, held bulls from placing fresh bets and was seen as a key factor that kept a lid on any strong positive move for the AUD/USD pair.

There isn’t any major market-moving economic data due for release from the US on Monday. This further makes it prudent to wait for a sustained break through the intraday trading range before positioning for any firm direction. In the meantime, the broader market risk sentiment, along with the US bond yields might influence the USD and produce some trading opportunities around the AUD/USD pair.

Technical levels to watch