AUD/USD drops back towards monthly support near 0.7200 on risk aversion

AUD/USD consolidates the heaviest daily slump in a fortnight around 0.7240 during early Wednesday morning in Asia. In doing so, the Aussie pair remains depressed around a lower band of the short-term trading range between 0.7320 and 0.7220.

Mounting concerns over the US Federal Reserve’s (Fed) imminent tapering of bond purchases initially triggered Tuesday’s big fall before escalating fears concerning China and Evergrande weighed on the sentiment, as well as on the AUD/USD prices.

The mood worsened on downbeat data from China and the US and propelled the US 10-year Treasury yields to the highest levels since mid-June, underpinning the US Dollar Index three-day rally to a 10-month peak. It’s worth noting that the equity markets had to bear the burden of firmer yields and risk-off mood while commodities trade mixed.

Fed Chairman Jerome Powell narrated inflation and employment stories to justify the central bank’s uttering of the word ‘taper’ during his testimony to Congress. Others from the Fed party followed the tune with their version in different public appearances. On the same line were the policymakers’ discomforts in extending the debt ceiling even as US Treasury Secretary Janet Yellen warned of the empty pockets on October 18.

The People’s Bank of China (PBOC) tried to defend the money flow with heavy liquidity injection but the World Bank and the Asian Development Bank (ADB) cited worries over the dragon nation’s economic growth by citing power cuts in addition to Evergrande problems.

The market fears got additional support from a softer print August Industrial Profit from China as well as the third month of weaker US CB Consumer Confidence, not to forget easy housing and Richmond Fed activity data. At home, the preliminary readings of Australia Retail Sales for August improved from -2.5% expected and -2.7% prior to -1.5% MoM.

Moving on, a lack of major data/events will keep AUD/USD traders mindful of the qualitative catalysts while trying to defend the short-term support. In doing so, the improvement in the covid conditions in Australia and faster jabbing may get attention. However, the hawkish Fed and China woes may challenge the bulls.

Technical analysis

The AUD/USD pair’s pullback from a convergence of the 50-DMA and 20-DMA, around 0.7320, looks to retest the lower end of the 100-pip trading range established since September 20, also comprising a one-month-old horizontal support line near 0.7220.