Oct 03, 2022 04:06 AM ET
By: AnalysisWatch
The AUD/USD attracts some buying near the 0.6400 mark on Monday and maintains its bid tone during the early European session. The pair, for now, appears to have broken a two-day losing streak and is currently trading in the mid-0.6400s, up 0.70% on the day.
A combination of factors is putting some downward pressure on the US dollar, which, in turn, offers some support to the AUD/USD pair. UK Finance Minister Kwasi Kwarteng confirmed that his government will not implement a plan to eliminate the 45% income tax rate, providing a modest boost to sterling. This, along with declining US Treasury yields, keeps dollar bulls on the defensive.
In fact, the benchmark 10-year U.S. Treasury bond pulled back from the 12-year highs it reached last Wednesday. Moreover, signs of stability in financial markets—as evidenced by the positive tone in U.S. equity markets—further weaken the safe-haven dollar and benefit the risk-sensitive Australian dollar. That said, the lack of follow-through selling warrants caution from aggressive bulls.
Traders now appear reticent and may prefer to stay on the sidelines ahead of Tuesday's key Reserve Bank of Australia policy decision. Meanwhile, growing acceptance that the Fed will continue to raise interest rates at a faster pace should act as a tailwind for U.S. bond yields and limit the dollar's decline. This, in turn, could limit the rise in the AUD/USD pair.
Therefore, it will be prudent to wait for strong follow-through buying before positioning for any near-term appreciation moves. Market participants are now awaiting the US ISM Manufacturing PMI, which will be released later in the early North American session. This, along with US bond yields and broader risk sentiment, will weigh on the dollar and provide some momentum for the AUD/USD pair.