The AUD/USD pair struggles to capitalize on Friday’s modest gains and seesaws between tepid gains/minor losses through the first half of the European session on the first day of a new week. The pair trades around the 0.6650 area, nearly unchanged for the day, and is influenced by a combination of factors.
Worries over slowing global growth and US debt ceiling woes weigh on investors’ sentiment and turn out to be a key factor acting as a headwind for the risk-sensitive Aussie. Apart from this, expectations that the Reserve Bank of Australia (RBA) might refrain from hiking in June, bolstered by the disappointing release of Australian jobs data last week, contributes to capping the AUD/USD pair. The downside, however, remains cushioned in the wake of a mildly softer tone surrounding the US Dollar (USD).
The USD Index (DXY), which tracks the Greenback against a basket of currencies, remains on the defensive for the second straight day and moves further from a two-month high touched on Friday. A surprise breakdown in the US debt ceiling negotiations fuels fears of an unprecedented American debt default. This, along with less hawkish remarks by Federal Reserve (Fed) Chair Jerome Powell, triggers a fresh leg down in the US Treasury bond yields and continues undermining the Greenback.
Without any relevant market-moving economic releases on Monday, traders also seem reluctant ahead of a critical meeting between President Joe Biden and House Republican Speaker Kevin McCarthy to discuss the debt ceiling. Apart from this, the US bond yields and the broader risk sentiment will influence the USD price dynamics and provide some impetus to the AUD/USD pair. The market attention will then shift to the release of flash PMI prints from Australia and the US on Tuesday.
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