- The risk-off impulse dragged the perceived riskier aussie to over a one-year low on Tuesday.
- COVID-19 jitters took its toll on the global risk sentiment and triggered a selloff in equities.
- Declining US bond yields weighed heavily on the USD and helped limit losses for the major.
The AUD/USD pair trimmed a part of its intraday losses to the lowest level since November 2020 and was last seen trading around the 0.7115 region, down 0.20% for the day.
Concerns about the potential economic fallout from the spread of a new vaccine-resistant variant – Omicron – triggered a fresh wave of the global risk-aversion trade. This was evident from a sharp fall in the equity markets, which, in turn, was seen as a key factor that drove flows away from the perceived riskier aussie. The AUD/USD pair dropped to sub-0.7100 levels, though the heavily offered tone surrounding the US dollar helped limit further losses, at least for the time being.
The latest developments surrounding the coronavirus saga now seemed to have dashed market expectations for an early policy tightening by the Fed. This, along with the global flight to safety, triggered a steep decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond dropped to a three-week low, back closer to the 1.45% threshold, and weighed heavily on the greenback. This, in turn, assisted the AUD/USD pair to recover around 25-30 pips.
That said, any meaningful upside still seems elusive amid a more dovish stance adopted by the Reserve Bank of Australia. Moreover, the AUD/USD pair’s inability to attract buyers suggests that the near-term bearish trend witnessed over the past one month or so is still far from being over. Hence, attempted recovery moves might still be seen as a selling opportunity and run the risk of fizzling out rather quickly near the 0.7155-60 supply zone, or weekly high set in the previous day.
Market participants now look forward to the US economic docket, highlighting the release of Chicago PMI and the Conference Board’s Consumer Confidence Index during the early North American session. The key focus, however, will be on Fed Chair Jerome Powell’s testimony before the Senate Banking Committee. Powell’s remarks will influence expectations about the Fed’s next policy move and drive the USD demand, which, in turn, might produce short-term trading opportunities around the AUD/USD pair.