The AUD/USD pair has struggled to continue its upward momentum and has retreated from a nearly two-week high of 0.6730, which was touched earlier this Monday. The spot prices, however, rebounded from the daily low and are currently trading below the 0.6700 round-figure mark heading into the North American session. The retreat comes after the intraday recovery in the global risk sentiment helped provide some support to the pair.
A solid rebound in the US equity futures has been a key factor lending support to the risk-sensitive Aussie. This comes amid the emergence of fresh selling around the US Dollar. The US Treasury bond yields have been sliding, exerting some downward pressure on the safe-haven Greenback, thus helping the AUD/USD pair.
The collapse of two mid-size US banks, Silicon Valley Bank and Signature Bank, has resulted in scaling back bets for a more aggressive policy tightening by the US central bank. This, in turn, has led to greater chances of a smaller 25 bps lift-off at the highly-anticipated FOMC monetary policy meeting, starting this Tuesday. As a result, the US bond yields have been declining. Interestingly, the rate-sensitive 2-year US government bond last week recorded its biggest three-day slump since Black Monday in October 1987. This has helped limit the downside for the AUD/USD pair.
However, concerns about the contagion risk and the possibility of a full-blown global banking crisis could still cap any optimism in the markets. The current situation suggests that traders might refrain from placing aggressive directional bets and prefer to move to the sidelines ahead of the release of the Reserve Bank of Australia’s (RBA) monetary policy meeting minutes, due during the Asian session on Tuesday. This will be followed by the FOMC decision on Wednesday, which will influence the USD and provide a fresh directional impetus to the AUD/USD pair.
When it comes to technical levels, to the upside, resistance could be seen near the initial resistance level at 0.6730. This is followed by the 0.6770 area, which if cleared decisively should accelerate the momentum further towards the key 0.6800 psychological mark. On the flip side, the immediate support awaits near the 0.6690-85 region, below which the pair might turn vulnerable to accelerate the fall towards the 0.6645-40 horizontal level.
Looking at the economic calendar, the RBA will publish its meeting minutes for March. The minutes will provide some insight into the central bank’s outlook. If the minutes signal a dovish stance – which is unlikely given the positive comments from the RBA Governor – this could weigh on the Australian dollar. On the other hand, if the central bank does not exhibit any dovish bias and repeats its commitment to gradual normalization, it could provide support to the currency.
At its March meeting, the RBA left its cash rate and three-year government bond yield targets unchanged, as expected. In its post-meeting statement, the central bank repeated its pledge to keep current policy settings – including bond purchases of around AUD 5 billion per week – until “actual inflation is sustainably within the 2-3 per cent target range”.
Looking further ahead, the pandemic, vaccination rates, and the global economic recovery remain the most prominent drivers of market sentiment. In terms of economic data, US retail sales data for February will be out on Tuesday, waiting to provide cues to the dollar’s direction. Meanwhile, investors also await the interest rate decision from the Bank of England, due on Thursday.
Overall, the AUD/USD pair continues to see gains amid stronger risk-on sentiment lately. Nevertheless, uncertainties surrounding the global economy and the pandemic continue to be the key drivers. Therefore, the markets are likely to remain cautious and subdued in the days ahead.