AUD/USD Analysis: Failure near of a key barrier warrants caution for bulls

  • AUD/USD settled with modest gains for the third straight session on Monday amid weaker USD.
  • A combination of factors acted as a tailwind for the USD and capped any further gains for the pair.
  • Aussie Trade Balance data, RBA decision did little to impress bullish traders or provide any impetus.

The AUD/USD pair kicked off the new week on a positive note and built on its recent bounce from the 0.7170 area or the lowest level since August 23. This marked the third successive day of an uptick and was sponsored by some follow-through profit-taking around the US dollar. Given the recent rally of as much as 2.8% since September 3, traders opted to lighten their USD bullish bets heading into this week’s release of the US monthly jobs report (NFP). That said, a combination of factors helped limit any deeper USD losses and capped gains for the major.

Investors seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus as soon as November and raise interest rates in 2022. This, along with a goodish pickup in the US Treasury bond yields, acted as a tailwind for the greenback. Apart from this, the risk-off impulse further benefitted the safe-haven USD and kept a lid on any meaningful upside for the perceived riskier aussie. The global risk sentiment was weighed down by worries about the fallout from China Evergrande Group’s debt woes and the ongoing energy crisis in China and Europe.

Nevertheless, the pair settled with modest gains, albeit struggled to capitalize on the move or find acceptance above the 0.7300 mark and witnessed some selling during the Asian session on Tuesday. Bulls seemed unimpressed by better-than-expected Australian Trade Balance data, which showed a surprise rise in the surplus to A$15.1 billion in August. The July figure was also revised up a little to A$12.65 billion from A$12.1 billion. However, the fact that the rise was led by a sharp fall in imports turned out to be a key factor that did little to provide any impetus to the major.

Meanwhile, the Reserve Bank of Australia (RBA) announced its monetary policy decision and decided to keep the official cash rate (OCR) unchanged at a record low of 0.10%. The bank also decided to maintain the target of 0.10% for the April 2024 government bond. Earlier on, some analysts were expecting the bank to push the target to the November 2024 bonds. In the accompanying monetary policy statement, the RBA Governor Philip Lowe said that the new outbreak of the coronavirus had a major impact on the Australian economy, though the effect is expected to be temporary.

Lowe reiterated that the bank will leave interest rates intact until the country’s inflation rises sustainably within the 2-3% target range. He further added that the central scenario for the economy is that this condition will not be met before 2024. The dovish tilt comes amid the emergence of fresh buying around the USD, which, in turn, prompted fresh selling around the major. It will now be interesting to see if the pair can find support at lower levels as traders look forward to the US ISM Services PMI for a fresh impetus later during the early North American session.

Technical outlook

From a technical perspective, any subsequent move beyond the 0.7300 round-figure mark is likely to confront stiff resistance near the 0.7315-20 supply zone. This should now act as a key pivotal point for short-term traders, which if cleared decisively will set the stage for additional gains. The pair might then surpass an intermediate hurdle near the 0.7365 region and aim to reclaim the 0.7400 round-figure mark. The momentum could further get extended towards the next relevant hurdle near mid-0.7400s en-route September monthly swing highs, around the 0.7475-80 region.

On the flip side, a fall below the 0.7250 level is likely to find decent support near the 0.7220 horizontal zone ahead of the 0.7200 mark. Failure to defend the mentioned support levels will shift the bias back in favour of bearish traders. This, in turn, will set the stage for a fall back towards challenging YTD lows, around the 0.7100 round-figure mark touched on August 20.