The AUD/USD pair demonstrates a notable rebound from this week’s low point, making a recovery of more than 50 pips from the 0.6635-0.6630 range. However, the upward momentum seems to be lacking follow-through.
Currently trading around the 0.6665-0.6670 region, the spot prices have slightly retreated from the daily peak but still show a modest gain of just over 0.20% for the day.
The US Dollar (USD) retreats from its recent peak, observed since June 12, and indicates a potential halt to the upward trend witnessed earlier this week. This development prompts some short-covering activity within the AUD/USD pair.
Nevertheless, the USD retains its strength due to expectations of further policy tightening by the Federal Reserve (Fed) and the prevailing risk-off sentiment, which limits the losses for the USD and places a cap on the risk-sensitive Australian dollar.
The minutes released from the June FOMC meeting on Wednesday confirmed that nearly all members support resuming rate hikes due to persistently high inflation levels. Consequently, market expectations for a 25 basis point lift-off at the upcoming FOMC meeting on July 25-26 are reinforced, resulting in a rise in US Treasury bond yields. Furthermore, concerns about economic challenges and the potential escalation of the US-China trade conflict dampen investor appetite for riskier assets.
It is important to note that on Monday, China announced fresh export restrictions on two metals that are extensively used in semiconductors, electric vehicles, and high-tech industries, and these curbs specifically target the US.
The announcement raises concerns about potential retaliatory measures and introduces the possibility of increased disruption to global trade. This further weakens the already fragile economic conditions, influencing risk sentiment and leading investors to seek refuge in safe-haven assets, such as the USD.
Given the fundamental backdrop described above, it is advisable to wait for strong buying momentum to confirm before considering an extension of the recent bounce of the AUD/USD pair from levels below 0.6600.
Market participants are now closely observing the US economic docket, which includes the ADP report on private-sector employment, the usual Weekly Initial Jobless Claims, the ISM Services PMI, and JOLTS Job Openings data. These releases are expected to provide fresh impetus later during the early North American session.
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