AUD/USD steadily climbs back closer to mid-0.7700s

The AUD/USD pair extended its steady intraday ascent through the first half of the European session and climbed to fresh session tops, around the 0.7735-40 region in the last hour.

Having defended the 0.7700 mark, the pair regained some positive traction on the first day of a new trading week and built on Friday's rebound from the 0.7675 region, or the lowest level since April 14. The US dollar remained on the defensive amid expectations that the Fed will retain its ultra-lose monetary policy for a longer period. This, in turn, was seen as a key factor that provided a modest lift to the AUD/USD pair.

Investors now seem aligned with the Fed's stubbornly dovish view that any spike in prices would prove to be temporary. This was evident from a rather muted market reaction to Friday's stronger than expected US inflation data. In fact, the core PCE Price Index – the Fed's preferred inflation gauge – jumped to 3.1% YoY in April validated the higher inflation narrative, though did little to provide any meaningful boost to the USD.

Apart from this, the underlying bullish sentiment in the financial markets further undermined the safe-haven USD and benefitted the perceived riskier aussie. The supporting factors helped offset rather unimpressive economic data from China, which suggested that the momentum in the manufacturing industry might have peaked. The official Chinese Manufacturing PMI slowed slightly to 51 in May from 51.1 in the previous month.

It will now be interesting to see if the AUD/USD pair is able to capitalize on the positive move or meets with some supply at higher levels amid holiday-thinned liquidity. Markets in Britain and the United States are closed for a holiday. Investors might also refrain from placing aggressive bets, rather prefer to wait on the sidelines ahead of the latest RBA monetary policy decision, scheduled during the Asian session on Tuesday.

Technical levels to watch