- A modest recovery in the risk sentiment failed to assist AUD/USD to capitalize on the early uptick.
- Concerns about worsening US-China relations capped the upside and prompted some fresh selling.
- Market worries further benefitted the USD’s safe-haven status against its Australian counterpart.
The AUD/USD pair struggled to capitalize on the early uptick to mid-0.6500s and has now dropped to the lower end of its daily trading range.
Having found some support near the key 0.6500 psychological mark on Friday, the pair managed to regain some positive traction on the first day of a new trading week. The uptick was supported by a modest recovery in the global risk sentiment, which tends to benefit perceived riskier currencies – like the aussie.
However, concerns about a further escalation in diplomatic tensions between the world's two largest economies kept a lid on any strong gains for the AUD/USD pair. It is worth recalling that the US President Donald Trump has threatened a strong reaction if China imposes new national security laws on Hong Kong.
The market worries continued benefitting the US dollar's perceived safe-haven status, which further contributed to the pair's intraday pullback of around 30 pips. The AUD/USD pair was last seen trading in the red for the third consecutive session, albeit relatively thin liquidity conditions might help limit deeper losses.
Hence, it will be prudent to wait for some strong follow-through selling, possibly below the 0.6500 mark, before positioning for any further near-term depreciating move. In the meantime, the AUD/USD pair seems more likely to remain confined in a narrow trading band amid the Memorial Day holiday in the US.
Technical levels to watch
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