(Haresh Menghani – FXStreet)
– AUD/USD gains some traction on Monday and snaps a five-day losing streak to a multi-week low.
– The PBoC’s move to lower benchmark rates offers support to the China-proxy Australian dollar.
– Recession fears, the underlying bullish tone surrounding the USD should cap any further gains.
The AUD/USD pair kicks off the new week on a positive note and snaps a five-day losing streak to a nearly one-month low touched on Friday. The People’s Bank of China (PBoC) lowered its benchmark rates for a second consecutive week in a bid to support a slowing economy. This, in turn, offers some support to the China-proxy Australian dollar and provides a goodish lift to the major amid subdued US dollar price action. That said, a combination of factors should hold back traders from placing aggressive bullish bets and keep a lid on any meaningful upside for the pair.
Unease over China’s economic woes amid its strict zero-COVID policy, along with growing recession fears, continue to weigh on investors’ sentiment. This is evident from a generally weaker tone around the equity markets and could act as a headwind for the risk-sensitive aussie. Apart from this, speculations that the Fed would stick to its policy tightening path favour the USD bulls. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside and the attempted recovery move runs the risk of fizzling out rather quickly.
The recent hawkish comments by several Fed officials reaffirmed hawkish Fed expectations and pushed the yield on the benchmark 10-year US government bond to the 3.0% threshold. This further supports prospects for a further near-term appreciating move. Investors, however, might prefer to wait on the sidelines ahead of Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium on Friday. Adding to this, this week’s important US macroeconomic releases would play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the AUD/USD pair.
In the meantime, the US bond yields will drive the USD demand on Monday amid absent relevant economic data from the US. Traders might further take cues from the broader market risk sentiment to grab short-term opportunities around the AUD/USD pair. Nevertheless, the fundamental backdrop warrants some caution before confirming that the major has formed a near-term bottom or positioning for any further gains.
AUDUSD Technical Outlook
From a technical perspective, the AUD/USD pair stalls its recent sharp pullback from over a two-month high near the 61.8% Fibonacci retracement level of the July-August rally. The said support, around the 0.6855 region, should now act as a pivotal point, which if broken decisively should pave the way for additional near-term losses. Spot prices might then turn vulnerable to weakening further below the 0.6800 round figure and test the next relevant support near the 0.6765-0.6760 area. Some follow-through selling would expose the YTD low, around the 0.6680 region, with some intermediate support near the 0.6735-0.6730 zone and the 0.6700 mark.
On the flip side, sustained strength beyond the 0.6900 confluence, comprising the 50-day SMA and the 50% Fibo. level, might trigger a short-covering move. Any further recovery, however, might still be seen as a selling opportunity and remain capped near the 0.6950-.6960 region. The latter coincides with the 38.2% Fibo. level, which if cleared decisively would negate any near-term negative outlook and shift the bias in favour of bullish traders. The AUD/USD pair might then aim to reclaim the 0.7000 psychological mark and climb further towards the 23.6% Fibo. level, around the 0.7030 region.