AUD/USD faces downside risk below 0.7520 amid USD rebound
- AUD/USD pares initial gains in the European session.
- US dollar retreats from the higher levels remain elevated.
- AUD remains vulnerable to market volatility and trade tensions with China.
AUD/USD pared the previous session’s gains on Tuesday. The pair opened higher, albeit fizzling out rather quickly to touch the low of 0.7512.
At the time of writing, AUD/USD is trading at 0.7520, down 0.20% for the day.
The US Dollar Index (DXY) stands at 91.96 with 0.10 gains for the day. The US 10-year benchmark yields trade at 1.49%, after falling to a four month low at 1.36% on Monday.
Investors continued to digest the twist in the Fed’s approach after the central bank signaled last week that it may raise interest rates twice by 2023.
Meanwhile, Fed Chair Jerome Powell said in testimony prepared for delivery to Congress that the labor market has shown signs of improvement but the pandemic risk remains in the economy. He acknowledged inflation as transitory although it has risen notably.
The greenback eased from the recent highs following the mixed comments from the Fed officials. St. Louis Fed President James Bullard said that Fed shout started discussing tapering, while New York Fed President John Willaims said it would be too soon to shift Fed monetary policy stance.
On the other hand, the Australian dollar is weighed down amid escalating trade tensions with China.
In addition to that, the sentiment also soured after a Chinese government agency announced to release reserves of key metals, including copper and aluminium to sustain the rising commodity prices. The antipodean loses its valuation against the falling commodity prices.
As for now, the dynamics around the US dollar continue to influence the pair’s performance in the short term.
AUD/USD additional levels