Title: AUD/USD flirts with daily low, seems vulnerable amid stronger USD/softer risk tone

Jul 11, 2022 01:35 AM ET

By: AnalysisWatch

The AUD/USD pair struggled to capitalize on last week's recovery move from the 0.6765-0.6760 area, a two-year low, and encountered fresh supply on Monday. The pair remained on the defensive at the start of European trade and was last seen trading near the daily low in the 0.6820-0.6815 area.

After a modest pullback from a fresh two-decade high following Friday's NFP report, the U.S. dollar was in demand again on the assumption that the Federal Reserve would stick to its faster pace of monetary tightening. The bets were reinforced by the latest monthly U.S. jobs report, which showed that the economy added 372,000 jobs in June, compared to expectations of 268,000. That said, the deteriorating economic outlook has continued to support the safe-haven dollar and put downward pressure on the risk-sensitive Australian dollar.

Investors remain concerned that rapidly rising interest rates and tightening financial conditions will challenge global economic growth. This, along with the ongoing war between Russia and Ukraine and the recent COVID-19 outbreak, has fueled recession fears. The combination of these factors favors USD bulls and supports the prospects of a resumption of the AUD/USD pair's downtrend. Therefore, a fall back towards the 0.6765-0.6760 support zone or the low for the year remains a good possibility.

There is no major market-moving economic data due for release in the US on Monday. Nevertheless, the risk sentiment of the overall market could influence the USD price dynamics and give some boost to the AUD/USD pair. However, the main focus will remain on the US consumer inflation figures on Wednesday.

Traders will also be guided by the monthly US retail sales and the preliminary Michigan consumer sentiment index on Friday. These will be crucial for near-term USD demand and will determine the next leg of the AUD/USD pair's directional change.