AUD/USD Flirts With Daily Low, Above Mid-0.6700s Amid Softer Risk Tone/Modest USD Strength

The AUD/USD pair continues struggling to make it through the 100-day Simple Moving Average (SMA) and attracts some sellers on Tuesday, snapping a six-day winning streak to over a three-week high touched the previous day. The pair maintains its offered tone through the first half of the European session and is currently placed near the daily low, just above mid-0.6700s.

The mixed Chinese Trade Balance data, showing a decline in imports by 1.4% and a slower growth of 8.5% in exports, fuel skepticism over a faster recovery in the world’s second-largest economy. This, in turn, tempers investors’ appetite for riskier assets, evident from a generally weaker tone around the equity markets, and undermines the risk-sensitive Aussie. Apart from this, some follow-through US Dollar (USD) buying for the second straight day exerts downward pressure on the AUD/USD pair.

The Federal Reserve’s (Fed) Senior Loan Officer Opinion Survey (SLOOS) released on Monday showed that tightening credit conditions was due to the aggressive rate hikes rather than severe banking sector stress. This, in turn, eased fears about a full-blown banking crisis in the US and led to the overnight sharp rally in the US Treasury bond yields. Furthermore, the risk-off impulse is another factor benefitting the safe-haven Greenback, though the Federal Reserve’s (Fed) less hawkish stance might cap gains.

The US central bank last week opened the door for an imminent pause in its year-long rate-hiking cycle and outlined a more stringent, data-driven approach to raising rates further. Moreover, Fed Chair Jerome Powell signaled that the central bank was close to hitting the terminal velocity of the current tightening cycle. This, along with the fact that markets have been pricing in the possibility of potential rate cuts during the second half of this year, keeps a lid on the US bond yields and acts as a headwind for the Greenback.

On the other hand, the Australian Dollar (AUD) might continue to draw support from the Reserve Bank of Australia’s (RBA) surprise 25-basis-points interest-rate hike last week. The Australian central bank indicated that some further tightening of monetary policy might be required to ensure that inflation returns to target in a reasonable timeframe. This, in turn, might hold back traders from placing aggressive bearish bets around the AUD/USD pair and help limit any further losses, at least for the time being.

Market participants might also prefer to wait on the sidelines before the latest US consumer inflation figures are released on Wednesday. The crucial US CPI report will play a key role in influencing expectations about the Fed’s next policy move, which, in turn, will drive the USD demand and provide a fresh directional impetus to the AUD/USD pair. This makes it prudent to wait for strong follow-through selling before confirming that spot prices have topped out and positioning for a meaningful corrective slide.

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