AUD/USD fades bounce off monthly low near 0.7000 as covid woes join pre-Fed anxiety

  • AUD/USD retreats towards one-month low during the four-day downtrend as market sentiment remains sour.
  • Beijing Sports Authority announces suspension of offline sports, CME’s FedWatch Tool hints at 75 bps rate hike in June.
  • Risk-off mood joins firmer US Treasury yields to favor US dollar.

AUD/USD renews selling pressure towards retesting the monthly low of 0.7000 after Beijing amplifies virus woes during early Monday morning in Europe. Also exerting downside pressure on the Aussie pair are the increasing hawkish bets on the Fed’s next move, as well as the Sino-American tussles.

“Beijing Sports Authority suspends offline sports events starting from June 13 due to covid,” said Reuters. During the weekend, Beijing’s local government spokesman Xu Heijian mentioned that a covid outbreak linked to a bar in Beijing is ferocious. Shanghai is on the same line as it reintroduced some activity restrictions after witnessing a jump in the virus numbers.

Elsewhere, comments from China’s Defense Minister Wei Fenghe also weigh on the AUD/USD prices, due to the fears of the fresh Sino-American tussles. China’s Wei mentioned that China’s relationship with the US is at a crossroads. The policymaker also added that they will fight to the end if anyone attempts to secede Taiwan from China. “those who seek Taiwan independence will come to no good end,” said China’s Wei.

On a different page, the CME FedWatch tool shows 26.8% chance of a 75 bp Federal Reserve rate hike at the June 15 meeting. The increase in hawkish bets takes clues from Friday’s upbeat US inflation data and propels the US dollar of late. The headline US Consumer Price Index (CPI) rose to 8.6% YoY versus 8.3% expected while the Core CPI jumped 6.0% YoY compared to the expected drop to 5.9% from 6.2% a month earlier.

Amid these plays, the S&P 500 Futures dropped for the fourth consecutive day to refresh a monthly low to around 3,845, down 1.35% by the press time. In doing so, the benchmark US equity futures stay directed towards the yearly low marked in May. Further, the US 10-year Treasury yields rise 2.7 basis points (bps) as buyers attack the four-year low marked in May, around 3.20%.

Moving on, AUD/USD traders may pay attention to the risk catalysts amid a light calendar on Monday. However, Wednesday’s Federal Open Market Committee (FOMC) and Thursday’s Aussie jobs report will be crucial for the pair traders to watch for clear directions.

Technical analysis

A broad horizontal support zone stretched from January, around 0.6955-70 appears a tough nut to crack for the AUD/USD bears. However, recovery remains elusive below the 20-DMA surrounding 0.7125.

Our Source

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