AUD/USD trades with modest gains around 0.7435 area, lacks bullish conviction
|- AUD/USD edged higher on Friday and recovered a part of the overnight losses.
- COVID-19 jitters continued acting as a headwind for the aussie and capped gains.
- Rebounding US bond yields might underpin the USD and favours bearish traders.
The AUD/USD pair traded with a mild positive bias heading into the European session, albeit lacked any follow-through buying. The pair was last seen trading around the 0.7435-40 region, up nearly 0.15% for the day.
The pair managed to find some support near the 0.7420 region, just ahead of YTD lows and edged higher on the last trading day of the week, recovering a part of the overnight losses. However, a combination of factors held bulls from placing any aggressive bets and kept a lid on the AUD/USD pair.
Investors remain worried about the spread of the highly contagious Delta variant of the coronavirus. In fact, the Australian state of Victoria was ordered into a five-day lockdown on Thursday following a spike in COVID-19 infections, which, in turn, acted as a headwind for the AUD/USD pair.
Meanwhile, COVID-19 jitters continued weighing on investors' sentiment and underpinned the safe-haven US dollar, which was further supported by a modest pickup in the US Treasury bond yields. This was seen as another factor that contributed to cap gains for the perceived riskier aussie.
Apart from this, hawkish Fed expectations further underpinned the greenback. Despite the Fed Chair Jerome Powell's dovish testimony, investors seem convinced that the US central bank will tighten its monetary policy sooner than anticipated amid rising inflationary pressure.
The fundamental backdrop seems tilted in favour of bearish traders and supports prospects for a further near-term depreciating move for the AUD/USD pair. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.
Even from a technical perspective, the range-bound price action witnessed over the past two weeks or so constitutes the formation of a rectangle on the daily chart. Given the recent downfall from June monthly swing highs, this might still be categorized as a bearish continuation pattern.
A convincing break below the 0.7400 mark will reaffirm the negative outlook and set the stage for additional losses for the AUD/USD pair. Market participants now look forward to the release of the US Retail Sales data for a fresh impetus later during the early North American session.
Technical levels to watch
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