The AUD/USD pair is seen retreating further from over a one-month high, around the 0.6980-0.6985 mark. The emergence of fresh US dollar buying is turning out to be a key factor exerting downward pressure and dragging spot prices back closer to the 0.6900 mark during the early North American session.
The market sentiment remains fragile amid growing worries about a possible global recession. This, along with the pre-Fed nervousness, is tempering investors’ appetite for perceived riskier assets.
This is evident from a weaker tone around the equity markets – at the same time this has boosted demand for the safe-haven US dollar and weighed on the risk-sensitive aussie.
the USD’s gains may be somewhat tempered by the very same global flight to safety that is supporting them. This is because as investors jump from riskier assets into safer havens like US Treasury bonds they are causing a steep intraday slide in bond yields (which move inversely to prices), which will eventually cap the USD (which is highly correlated to yields) and lend support to the AUD/USD pair.
Investors might also prefer to wait on the sidelines ahead of this week’s heavyweight US macro data and the highly anticipated FOMC monetary policy decision on Wednesday.
In a rather busy week for US data, the Conference Board’s Consumer Confidence Index kicks things off on Tuesday. The focus, however, will remain on the outcome of a two-day FOMC policy meeting. The Fed is expected to hike interest rates by another 75 bps and leave the door open for further policy tightening.
Heading into the key central bank event risk, traders will take cues from the quarterly consumer inflation figures from Australia, scheduled during the Asian session on Wednesday. This week’s US economic docket also highlights the release of Durable Goods Orders on Wednesday and the Advance Q2 GDP report on Thursday.
This, along with the US Personal Consumption Expenditures (PCE report) – the Fed’s preferred inflation gauge – due on Friday will influence the USD and provide a fresh impetus to the AUD/USD pair. In the meantime, traders might refrain from placing aggressive bets, warranting caution before confirming that the recent move up has run out of steam.