AUD/USD drops to fresh four-month low near 0.7000 on sour sentiment ahead of China trade data

• AUD/USD prints three-day downtrend to poke the yearly low marked in January.
• Risk aversion intensify as China’s covid conditions worsen, G7 unveils fresh sanctions on Russia.
• Fears of faster/heavier rate hikes, inflation woes also weigh on the risk barometer pair.

AUD/USD justifies its risk barometer status by declining to the 0.7000 threshold during Monday’s Asian session, down for the third consecutive day, also around the lowest levels since January.

The pair’s latest fall could be linked to escalated covid fears in China, as well as the Group of Seven (G7) nations’ sanctions on Russia. Also keeping the AUD/USD bears hopeful are the concerns that the global monetary policies will tighten amid the inflation fears.

While considering the worsening covid conditions and the resulting strict activity restrictions, recently in Shanghai, “Chinese Premier Li Keqiang warned of a "complicated and grave" employment situation as the country imposed sweeping lockdowns to contain Covid-19 outbreaks,” per Bloomberg.

Also challenging the mood is the global pressure on Russia, as it escalates fighting in Eastern Ukraine. During the weekend, the G7 nations held a virtual call with Ukrainian President Volodymyr Zelensky and said, per Reuters, “They would cut off key services on which Russia depends, reinforcing the isolation of Russia "across all sectors of its economy."

On a different page, the US Dollar Index (DXY) rallied to the fresh high in two decades on Friday, 0.23% intraday near 103.90 by the press time, as markets keep the odds of a 75 basis points rate hike from the Fed on the table following the strong US jobs report. That said, the US Nonfarm Payrolls (NFP) reprinted the 428K figures, if compared to the revised figures for March, by surpassing the 391K forecasts. On the same line, the Unemployment Rate also remained intact at 3.6%.

Following the data, Minneapolis Fed President and FOMC member Neel Kashkari said in a blog post on Medium, “Given that long-term real rates have the greatest influence on the demand for credit, financial conditions are already nearly back to neutral levels.”  The policymaker also said his assessment of the nominal neutral rate of interest is still that it is around 2.0%. It’s worth noting that the President of the Federal Reserve Bank of St. Louis James Bullard reiterated his bullish bias and pushed the Fed towards a 3.5% rate.

Against this backdrop, S&P 500 Futures drop 1.20% whereas the US 10-year Treasury yields remain firmer around 3.11%.

Moving on, China’s trade numbers for April will be important for the NZD/USD prices due to Auckland’s trade ties with Beijing. The headline Trade Balance is expected to increase to $50.65B versus $47.38B prior while the Imports and Exports may print mixed figures and can probe the bears.

Technical analysis

The support line of a two-month-old falling wedge chart pattern challenges the AUD/USD pair sellers around the 0.7000 threshold. The recovery moves remain elusive unless confirming the bullish chart pattern, by crossing the 0.7215 hurdle. However, the 100-DMA level surrounding 0.7260 appears a tough nut to crack for the AUD/USD bulls.