AUD/USD faces downward pressure: Risk aversion and RBA's rate decisions impact
Explore the factors behind the AUD/USD's third consecutive week of decline, including risk aversion selling, RBA's rate decisions, and the influence of global bond market dynamics.
Last week, the AUD/USD closed lower for a third consecutive week due to risk aversion selling and following the RBA's decision to keep rates on hold at 4.10%.
Impact of global events on AUD/USD
The risk aversion selling was triggered by a significant rise in yields on the typically stable US 30 bond during the week. The US Treasury's unexpected announcement of larger sizes for upcoming auctions caught the market off guard, leading to bond market malaise. This was further exacerbated by spillover effects from the BoJ's meeting, which saw a slight adjustment to YCC, and the Fitch downgrade of the US credit rating.
We firmly believe that it is not just the direction of yields that influences cross-asset volatility, but rather the speed of the movement that causes dislocation.
Hence, market participants will closely monitor this week's quarterly auctions of 10-year notes and 30-year bonds to gauge the level of demand. Any signs of bond market indigestion may quickly impact other risk assets, including the AUD/USD.
Domestic factors influencing AUD/USD
On the domestic front, key events influencing the AUD/USD will be Tuesday's consumer and business confidence surveys. With the RBA's decision to hold rates and lower inflation, we expect consumer sentiment to rebound towards 85 from the previous 81.3. Meanwhile, the NAB Business Confidence index is likely to see a slight decline from 0 to -1.
AUD/USD technical analysis
In terms of technical analysis, our outlook for the AUD/USD remains mildly negative as long as it stays below resistance at .6600/20. We anticipate a test of the May .6458 low. However, a sustained break above .6600/20 could lead to a retest of the 200-day moving average at .6732. In such a scenario, the double top at .6900c would be the next major level of interest.
AUD/USD daily chart
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