AUD/USD Outlook: 0.7700 holds the key for bulls as focus shifts to RBA on Tuesday

The AUD/USD pair extended the previous day's rejection slide from the key 0.8000 psychological mark, or multi-year tops and was hammered down for the second consecutive session on Friday. The US dollar continued benefitting from the recent runaway rally in the US Treasury bond yields and expectations of a relatively faster US economic recovery from the pandemic. The impressive pace of COVID-19 vaccinations and the progress in US President Joe Biden's $1.9 trillion relief package has been fueling the relation trade. This, in turn, forced investors to start pricing in the possibility for an uptick in inflationary pressure and continued pushing the US bond yields higher.

Meanwhile, a savage selloff in the bond markets spooked investors and spread to other risk assets. This was seen as another factor that underpinned the safe-haven greenback and exerted some additional pressure on the perceived riskier Australian dollar. On the economic data front, the US Core PCE Price Index edged higher to 0.3% MoM and 1.5% YoY in January. The readings were slightly better than consensus estimates and remained supportive of the strong bid tone surrounding the USD. That said, a sharp pullback in the US bond yields kept a lid on any further gains for the USD and assisted the pair to defend the 0.7700 mark on a daily closing basis, at least for the time being.

Moreover, investors seemed reluctant to place aggressive bets ahead of the RBA monetary policy update on Tuesday. Apart from this, a goodish rebound in the equity markets helped the pair to regain some positive traction on the first day of a new trading week. The pair has now recovered a part of last week's heavy losses and seemed unaffected by disappointing China's official Manufacturing PMI released over the weekend. The pair was last seen trading around mid-0.7700s and remains at the mercy of the USD price dynamics. Moving ahead, the release of the US ISM Manufacturing PMI will influence the greenback. This might assist traders to grab some trading opportunities later during the early North American session and ahead of the central bank event risk.

Short-term technical outlook

From a technical perspective, the pair broke through a three-week-old ascending trend-line support on Friday. A subsequent acceptance below the 23.6% Fibonacci level of the 0.6990-0.8008 might have already set the stage for a further decline. Hence, some follow-through weakness towards testing the 38.2% Fibo. level, around the 0.7620-15 region, looks a distinct possibility. This is closely followed by the 0.7600 round-figure mark, below which the corrective fall could further get extended towards the key 0.7500 psychological mark. The latter coincides with the 50% Fibo. level and should now act as a key pivotal point for the pair’s next leg of a directional move.

On the flip side, any further positive move is likely to confront a stiff resistance near the 0.7800 round-figure mark. A sustained move beyond might trigger a short-covering move and push the pair further towards the 0.7870 resistance zone en-route the 0.7900 round-figure mark. Some follow-through buying beyond the 0.7900 mark will negate any near-term negative bias and assist the pair to make a fresh attempt towards conquering the 0.8000 psychological mark.