AUD/USD moves to fill-in the opening bearish gap

• AUD/USD bearish gap is filled in as bulls step in ahead of a week thwart with risks. 
• COVID-19, US/Sino and general economic risks are set to give the bulls a difficult time staying on top.

AUD/USD opened in a bearish gap within a 19 pip range at the start of business of the final week of July. 

The price at the time of writing is trading at 0.7096 within a 0.7082/03 range on the session so far. 

Traders will be gearing up for a busy week ahead where the onus has been on equities and precious metals prices as the US dollar crumbles on the prospects of negative real yields as the virus takes grip.

Coronavirus weighs on risk sentiment

The coronavirus has taken a toll on market sentiment in recent weeks as US cases spiral out of control across various states of America. 

More than 1,000 Americans have died each day between Tuesday and Friday, the worst tally of human loss since late May.

The number of patients hospitalized with COVID-19 has roughly doubled over the past month with the worst being seen in states such as California, Florida, Texas and Arizona.

US hospitals treated 59,670 people on Friday, just shy of the mid-April record of 59,940, according to the COVID Tracking Project.

Meanwhile, and very likely contributing to today's sharp opening gap in the Aussie, Victoria recorded 459 new coronavirus cases and 10 deaths in Australia’s deadliest day in the pandemic.

A national record of 10 Covid-19 deaths was reported in Victoria on Sunday. There are 228 Victorians in hospital and 42 of those are receiving intensive care.

Sino/US tensions flare-up

In other risks, relations between the US and China are flaring up.

Beijing has ordered the closure of the US consulate in Chengdu in retaliation for Washington shutting its Houston mission, raising fears of a new cold war and buffeting global stock markets.

The tit-for-tat closures represent a sharp deterioration in relations between the countries with China's foreign affairs ministry on Saturday accusing the US of violating international and bilateral agreements.

The consulate closures are being seen by many experts "as a new low in China/US relations since both countries normalized diplomatic relations in the late 70s.

The South China Sea and Hong Kong are also ongoing risks for markets to be concerned for, all for which can weigh on the commodity-linked currency complex as implications for heightened tensions weigh on international trade prospects. 

The Fed to the rescue

Meanwhile, looking ahead on the week's economic calendar, all ears to the ground for the Federal Reserve's interest decision and Aussie Consumer Price Index.

The temporary introduction of free child care, falling oil prices and rents are likely to drive a record drop in headline Q2 CPI, -2% QoQ, taking annual inflation to -0.5%. Trimmed mean is likely to be flat q/q, taking annual trimmed to 1.3%,

analysts at TD Securities explained.

This is below the 1.5% RBA f/c, marking 24 quarters that core inflation will be below the 2.5% midpoint.

As for the Fed, markets are not expecting anything to get in the way of risk assets.

The analysts at TD Securities explained that the Fed officials have ‟made clear that their forward guidance will be made more dovish and outcome-based soon, likely in conjunction with the formal adoption of AIT when the review is completed.

We don't expect those developments until after the September meeting, but the chair is likely to continue the process of prepping markets for changes at next week's press conference.‟

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