• A combination of supporting factors pushed AUD/USD to over a two-week high on Monday.
  • RBA’s hawkish signal, the risk-on mood underpinned the aussie amid modest USD weakness.
  • Recession fears, aggressive Fed rate hike bets should limit the USD losses and cap the major.

The AUD/USD pair attracted fresh buying on Monday and prolonged its recent strong recovery move from the lowest level since June 2020, around the 0.6830-0.6825 region touched earlier this month. The Australian dollar continued drawing support from the Reserve Bank of Australia's hawkish signal that a bigger interest rate hike is still possible in June amid the upside risks to inflation. Adding to this, RBA Assistant Governor Christopher Kent hinted at a gradual downsizing of the balance sheet during his speech on the first day of a new week. Furthermore, the upbeat mood in the equity markets undermined the safe-haven US dollar and benefitted the risk-sensitive aussie.

Investors, however, remain worried that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. Adding to this, the Russia-Ukraine war and extended COVID-19 lockdowns in China have been fueling recession fears. This, in turn, should keep a lid on any optimistic move in the markets, which, along with hawkish Fed expectations, favours the USD bulls. Market participants seem convinced that the US central bank would need to take more drastic action to bring inflation under control. Apart from this, a goodish pickup in the US Treasury bond yields supports prospects for the emergence of some USD dip-buying.

Nevertheless, the AUD/USD pair, so far, has managed to stick to its intraday gains and climbed back above the 0.7100 round-figure mark during the Asian session. In the absence of any major market-moving economic releases from the US, the US bond yields and the broader market risk sentiment will continue to play a key role in influencing the USD demand. This, in turn, should provide some impetus to the major and allow traders to grab some short-term opportunities on the first day of the week. Traders will then look forward to the release of the flash PMI prints from Australia and the US on Tuesday. The focus, however, will remain on Wednesday's release of the FOMC meeting minutes.

Technical outlook

From a technical perspective, any subsequent move up is likely to confront resistance near the 0.7140-0.7145 region, or the 38.2% Fibonacci retracement level of the 0.7662-0.6829 downfall. Given that oscillators on the daily chart have just started gaining positive traction, sustained strength beyond would be seen as a fresh trigger for bulls. The AUD/USD pair might then aim to reclaim the 0.7200 round-figure mark and accelerate the momentum towards testing the 0.7245-0.7250 confluence hurdle. The latter comprises the 100-day SMA and the 50% Fibo. level and is closely followed by the very important 200-day SMA. Some follow-through buying would suggest that the pair has bottomed out and pave the way for a further near-term appreciating move.

On the flip side, last week’s swing high, around the 0.7075-0.7070 region, now seems to protect the immediate downside ahead of the 0.7025 area, or the 23.6% Fibo. level. Any subsequent slide might continue to attract some buying near the 0.7000 psychological mark. This, in turn, should help limit the downside near the 0.6950 area, which if broken decisively will negate any near-term positive bias. The AUD/USD pair might then turn vulnerable to weaken further below the 0.6900 mark and test the next relevant support near the 0.6870 region. The downward trajectory could further get extended towards challenging the YTD low, around the 0.6830-0.6825 region, before the pair eventually drops to the 0.6800 mark.

fxsoriginal

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD has lost its bullish momentum after having climbed above 1.0570 with the initial reaction to the US data in the American session and retreated toward the mid-1.0500s. On a weekly basis, the pair remains on track to close in positive territory. 

EUR/USD News

GBP/USD struggles to hold above 1.2300

GBP/USD struggles to hold above 1.2300

GBP/USD has edged lower following a jump above 1.2300 in the early American session on Friday. The market mood remains upbeat ahead of the weekend with Wall Street's main indexes posting strong daily gains on upbeat US data. 

GBP/USD News

Gold stays below $1,830 as US yields edge higher

Gold stays below $1,830 as US yields edge higher

Gold continues to fluctuate below $1,830 on Friday and looks to close the second straight week in negative territory. Fueled by the risk-positive market environment, the benchmark 10-year US Treasury bond yield is up more than 1% on the day, limiting XAU/USD's upside.

Gold News

Why Cardano could surprise over the weekend

Why Cardano could surprise over the weekend

ADA  set to close out the week with a gain on the workday trading week and over the weekend? Central banks signaled that the rate hike cycle is ending, meaning less stress and tight conditions for trading, opening up room for some upside potential with Cardano set to pop above $0.55 and test a significant cap.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures