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  • Aussie weighed down by yuan’s slump, which boosts the US dollar.
  • A pause in gold’s rally further undermines AUD/USD.
  • Losses, however, cushioned by positive S&P 500 futures.

The AUD/USD pair holds the lower ground in European trading this Monday, as the bears gear up for a test of the 0.7200 level amid holiday-thinned light trading.

The spot extends the retreat from the daily highs of 0.7236, undermined by the sell-off in the Chinese yuan against the US dollar, thanks to the policy action undertaken the People’s Bank of China (PBOC) over the weekend to curb the recent yuan’s strength.

The Chinese central bank abandoned rules that made shorting against the currency expensive. “Financial institutions will no longer need to set aside cash when purchasing foreign exchange for clients through currency forwards,” Bloomberg reports, citing the PBOC statement.

The subsequent rally in USD/CNH helped the greenback to recover some ground across its major peers, also adding to the downward pressure on the aussie. Meanwhile, a stall in gold’s rally to two-week highs above $1900 also bodes ill for the resource-linked – the AUD.

However, the extent of declines in the spot is curtailed by the rise in the S&P 500 futures, which somewhat offers a reprieve to the AUD bulls. The futures tied to the US stocks trade with 0.30% gains so far, benefiting from a better market mood, despite the rising coronavirus resurgence concerns globally.

Looking ahead, the sentiment around the major will remain driven by the yuan’s and US dollar’s price action amid a holiday in the US and ahead of the Chinese trade figures due on Tuesday.

AUD/USD: Technical levels

FXStreet’s Analyst Omkar Godbole explains, “AUD/USD faced rejection at 0.7234. That level is housing the trendline connecting Sept. 1 and Sept. 18 highs. A close higher would imply an end of the pullback from the Sept. 1 high of 0.7413 and bullish reversal. Friday’s low is now the level to beat for the bears.”

AUD/USD: Additional levels