- AUD/USD remains under pressure at nearly two-year lows as risk aversion dominates.
- Growing fears that higher inflation and tighter monetary policies would weigh on economic growth helped the declines.
- Headlines from China and Russia offered additional clues to spread pessimism.
- Aussie NAB Sentiment data, Fedspeak may entertain traders but risk catalysts are key ahead of Wednesday’s US CPI.
AUD/USD bears hold the reins around 0.6950, the lowest levels since July 2020, after the risk-aggressive mood caused the pair to print a three-day downtrend to test a low of several months. That said, the Aussie pair is trading sideways in the early hours of Tuesday, following the notable decline outlined on Monday.
Market fears were bolstered by growing worries about economic growth as inflation pushes central bankers toward tighter monetary policies. Worsening covetous conditions in China and Russia’s ignorance of global anger over Ukraine’s invasion also contributed to sour sentiment, as well as weighing on the risk-barometer pair. .
A weaker import of metals by China and a further tightening of business restrictions in Shanghai, as well as Beijing, due to the faster spread of the coronavirus variant, signaled new challenges for the chain. global supply and raw material price difficulties. Iron ore, Australia’s top export, fell more than 6.0% and contributed to the AUD/USD pair’s slide yesterday.
Elsewhere, Russia’s victory parade has traders expecting further geopolitical difficulties in Ukraine as Moscow expects ‘special operations results’, showing no willingness to scale back military operations despite Western sanctions.
Belligerent comments from Fed policymakers also contributed to the declines in AUD/USD. Richmond Fed President Thomas Barkin kept the 75 basis point rate hike on the table while the Atlanta Fed’s Raphael Bostic promoted a series of 50 basis point rate hikes.
Amid those games, Wall Street saw red but U.S. Treasury yields failed to cheer risky sentiment, despite a refreshing multi-day high earlier on Monday. Additionally, the US Dollar Index (DXY) hit a 20-year high amid a flight to safety.
Next, business confidence and National Australia Bank (NAB) trading conditions for May will lead short-term moves in AUD/USD ahead of comments from expected Fed speakers. However, particular attention will be paid to how traders react to fears of higher inflation and growth, as well as headlines out of China and Russia. That said, NAB business confidence is expected to drop from 16 to 14, while trading conditions could drop from 18 to 23.
With a sharp break down from the yearly low around 0.6965, AUD/USD becomes vulnerable to testing the June 2020 low near 0.6775. During the fall, the round numbers of 0.6900 and 0.6800 can offer intermediate stops.