AUD/USD RECOVERS FURTHER FROM TWO-YEAR LOW, CLIMBS BACK ABOVE MID-0.6800S

• AUD/USD gained some positive traction on Monday amid modest USD weakness.
• The recent fall in the US bond yields, a positive risk tone weighed on the greenback.
• Repositioning trade ahead of the RBA decision on Tuesday further extended support.

The AUD/USD pair kicked off the new week on a positive note and built on Friday’s late rebound from the 0.6765-0.6760 region, or its lowest level since June 2020. The recovery momentum extended through the first half of the European session and lifted spot prices back above the mid-0.6800s.

Against the backdrop of the recent sharp decline in the US Treasury bond yields, signs of stability in the financial markets acted as a headwind for the safe-haven US dollar. This, in turn, was seen as a key factor that extended some support to the risk-sensitive aussie. Apart from this, some repositioning trade ahead of the Reserve Bank of Australia policy meeting on Tuesday prompted traders to lighten their bearish bets around the AUD/USD pair.

That said, the prospects for a more aggressive policy tightening by the Fed and growing recession fears should act as a tailwind for the greenback. This, along with sinking commodity prices should keep a lid on any meaningful upside for the resources-linked Australian dollar. This makes it prudent to wait for strong follow-through buying before confirming that the AUD/USD pair has formed a near-term bottom and positioning for any further gains.

The US markets will remain closed on Monday in observance of Independence Day. Hence, the focus will remain on the RBA policy decision, scheduled to be announced during the Asian session on Tuesday. Traders will further take cues from the FOMC monetary policy meeting minutes on Wednesday. Apart from this, the closely-watched US monthly jobs report (NFP) on Friday will help determine the near-term trajectory for the AUD/USD pair.