- AUD/USD edged lower for the second successive day on Monday amid a modest USD strength.
- The downside remains cushioned ahead of the key central bank events – RBA/FOMC meetings.
The AUD/USD pair quickly recovered a few pips from the early European session lows and was last seen trading with only modest intraday losses, around the key 0.7500 psychological mark.
The pair extended Friday's retracement slide from the 0.7555-60 region, or the highest level since early July and witnessed some follow-through selling on the first day of a new week. This marked the second successive day of a negative move for the AUD/USD pair and was sponsored by a modest US dollar strength.
The USD remained well supported by expectations that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. The speculations were fueled by Friday's US Core PCE Price Index – the Fed's preferred inflation gauge – that held steady near 30-year highs in September.
Meanwhile, fears of a faster than expected rise in inflation, along with signs of a global economic slowdown have raised concerns about the risk of stagflation. This further benefitted the safe-haven greenback, through a generally positive tone around the equity markets helped limit losses for the perceived riskier aussie.
Apart from this, rising bets for an interest rate hike by the Reserve Bank of Australia (RBA) extended some support to the AUD/USD pair. Hence, the market focus will remain glued to this week's key central bank event risks. The RBA will hand down its policy update on Tuesday, while the Fed is scheduled to announce its decisions on Wednesday.
In the meantime, traders might prefer to wait on the sidelines and refrain from placing aggressive bets, which should lead to an extension of a subdued/range-bound price action. That said, Monday's release of the US ISM Manufacturing PMI might influence the USD and provide some impetus later during the early North American session.
