AUD/USD: Bears brace for 0.7400 on US dollar strength

AUD/USD bears keep controls for the third consecutive day as the quote stays heavy around 0.7445 amid early Wednesday morning in Asia. The Aussie pair registered the biggest daily losses in four the previous day as the US dollar index (DXY) rallied the most in a month.

The eternal power of greenback bulls…

Be it the resurgence of the coronavirus (COVID-19) woes in the West or reflation fears, markets have all the reasons to put safe-haven bids under the US dollar. The result being the greenback gauge’s jump to the three-month high, flashed last week.

The UK registers the most covid-led deaths since April whereas the total infections ease in Australia from 120, the highest in 10 months to 100. Even so, the death toll in New South Wales (NSW) and Queensland keeps policymakers worried and rush for more jabbing in the Oz nation. Elsewhere, the US authorities discuss the need for the third covid vaccine shot.

The fears of the covid resurgence become stronger amid the variants’ ability to spread faster as well as having resistance to the vaccines. The same could weigh on the latest economic transition of the pandemic and back the rush to risk-safety.

Other than the covid fears, reflation fears also pleased the USD bulls as the US Consumer Price Index (CPI) rose past 4.9% expected to 5.4% YoY while the core reading was also upwardly revised from 3.8% to 4.5%. Even so, Fed Chairman Jerome Powell’s Testimony on the Semi-Annual Monetary Policy Report before the House Financial Services Committee may reiterate the “transitory” outlook for price pressures as details of the data has been supportive to what the Fed Chief has been saying.

Alternatively, Aussie PM Scott Morrison announced an increase in emergency disaster payments to individuals and jointly funded payments to businesses, on certain conditions, to battle the covid-led losses.

It’s worth noting that China’s trade numbers helped AUD/USD to test the 0.7500 level earlier in Asia on Tuesday but National Australia Bank’s (NAB) figures couldn’t please the bulls.

Amid these plays, US equities stepped back from the record top flashed the previous day whereas US 10-year Treasury yields rose 5.5 basis points (bps) to 1.418% by the end of Tuesday’s trading.

Looking forward, COVID-19 updates and comments from the Fed policymakers will be the key to follow whereas July’s Westpac Consumer Confidence for Australia, prior -5.2% could offer immediate direction.

Technical analysis

Unless crossing 200-DMA, around 0.7585, on a daily closing, AUD/USD stays poised to refresh the yearly low near 0.7410. However, any further downside will be challenged by a short-term descending trend line from June 18, close to 0.7395.