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3 Feb 2022

AUD/USD flirts with daily low, around 0.7120-15 region amid modest USD strength

  • A goodish pickup in the USD demand prompted some selling around AUD/USD on Thursday.
  • A softer tone around the equity markets further undermined the perceived riskier aussie.
  • Investors now await the BoE/ECB policy decisions for some impetus ahead of the US data.

The AUD/USD pair remained on the defensive through the early part of the European session and was last seen hovering near the daily low, around the 0.7115 region.

The pair witnessed some selling on Thursday and for now, seems to have snapped three successive days of the winning streak to the weekly high touched in the previous day. As investors looked past Wednesday's awful US ADP report, the US dollar made a strong comeback and exerted some pressure on the AUD/USD pair.

Despite less hawkish comments by Fed officials, investors seem convinced that the US central bank will tighten its monetary policy at a faster pace than anticipated to contain stubbornly high inflation. This, in turn, was seen as a key factor that assisted the USD to stall its recent sharp pullback from the 18-month peak.

The greenback was further supported by an uptick in the US Treasury bond yields. Apart from this, a softer tone around the equity markets further benefitted the safe-haven greenback and weighed on the perceived riskier aussie. That said, diminishing odds for a 50 bps Fed rate hike in March might cap gains for the buck.

Investors might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the key central bank event risks – the Bank of England and the European Central Bank meetings. Hence, it will be prudent to wait for a strong follow-through selling before positioning for a fresh leg down for the AUD/USD pair.

The BoE/ECB-inspired volatility in the markets might provide some impetus to the major ahead of the release of the US ISM Services PMI. This, along with the US bond yields, might influence the USD. Traders will further take cues from the broader market risk sentiment for some short-term opportunities around the AUD/USD pair.

Technical levels to watch

 

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