- AUD / USD edged down for the second day in a row on Monday amid modest dollar strength.
- The decline remains dampened ahead of major central bank events – the RBA / FOMC meetings.
AUD / USD quickly recovered a few pips from European first session lows and was last seen trading with only modest intraday losses, around the key psychological bar of 0.7500.
The pair extended Friday’s retracement decline from the 0.7555-60 region, or the highest level since early July, and saw back-to-back selling on the first day of a new week. This marked the second day in a row of negative movement for the AUD / USD pair and was sponsored by modest US dollar strength.
The USD remained well supported by expectations that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. Speculation was fueled by Friday’s US Core PCE price index – the Fed’s preferred inflation indicator – which held close to 30-year highs in September.
At the same time, fears of a faster than expected rise in inflation, as well as signs of a global economic slowdown, have raised concerns about the risk of stagflation. This further benefited the greenback, a safe haven, thanks to a generally positive tone around the equity markets which helped limit losses for the Aussie perceived as riskier.
Apart from that, growing bets on an interest rate hike by the Reserve Bank of Australia (RBA) have extended some support to the AUD / USD pair. Therefore, the market’s attention will remain focused on the main risks associated with this week’s central bank events. The RBA will issue its policy update on Tuesday, while the Fed is expected to announce its decisions on Wednesday.
In the meantime, traders might prefer to wait on the sidelines and refrain from placing aggressive bets, which should lead to an extension of moderate / limited price action to a range. That said, the publication of the ISM US Manufacturing PMI on Monday could sway the USD and provide momentum later at the start of the North American session.