- US Dollar Index stays directionless near mid-94s.
- Risk-off mood weighs on risk-sensitive currencies.
- Wall Street looks to open lower.
After closing the previous week with a loss over 150 pips, the AUD/USD pair is moving in a tight 30-pip range and is having a difficult time making a meaningful recovery on Monday. As of writing, the pair is trading at 0.7430, losing 0.12% on the day.
The market fear over a rapidly escalating trade conflict between the United States and China weighs on risk-sensitive assets on Monday. In pre-market trading, .VIX,, Wall Street’s fear gauge, rose more than 10% to show that investors are likely to continue to move toward safe-havens. Meanwhile, the 10-year T-bond yield in the United States stays in the negative territory near 2.91%.
The fact that China is Australia’s biggest trade partner could have mixed implications for Australia’s economy in the medium-term. For now, however, participants are likely to refrain from taking risky positions.
“The extent of AUD weakness is thus a little puzzling, but it might be at least in part due to the re-escalation of US-China trade tensions,” Westpac analysts argued in a recent report and elaborated: “AUD underperformed major currencies – even fellow trade-sensitive currency the kiwi – in March when US-driven protectionist trade measures were the main market focus, so this could be a persistent theme for the Aussie, which is starting the week very close to fresh 12 month lows under 0.7400.”
There won’t be any macroeconomic data releases from the United States in the remainder of the session. During the Asian trading hours on Tuesday, the RBA is going to publish the minutes from its last meeting.
Technical outlook
On the upside, 0.7500 (psychological level) remains as the first hurdle ahead of 0.7550 (50-DMA) and 0.7610 (Jun. 13 high). On the downside, supports could be seen at 0.7410 (May 8 low), 0.7370 (Jun. 1, 2017, low) and 0.7330 (May 9 low).
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