AUD/USD holds above sub-0.7000 annual lows for now, even as global equities/commodities crater

• AUD/USD is holding above support in the 0.7000 area for now, though is still substantially lower on the day.
• Global equities and economic growth-sensitive commodities are under pressure on Monday, weighing on the risk/commodity-sensitive Aussie.
• US CPI will be the key moment of the week for the pair.

Slightly better than expected Chinese trade figures for the month of April have done very little to offer the Australian dollar support this Monday, with the currency momentarily sliding below the $0.7000 level earlier in the day. In doing so, AUD/USD hit fresh lows since late January, though, for now, support in the form of the earlier annual lows is holding up.

Still, at current levels in the 0.7010s, the pair is still trading with on the day losses of about 0.8% on the day and down about 3.5% versus last week’s highs in the mid-0.7200s. The pair has been weighed heavily in recent days by a combination of factors. Firstly, the US dollar has been robust amid rising US yields as traders brace for a more aggressive Fed tightening cycle in wake of last week’s hawkish Fed policy meeting.

Secondly, global risk assets (including equities and growth-sensitive commodities) have been taking a battering as financial conditions tighten (i.e. yields rise), and as market participants fret about central bank tightening amid high inflation and slowing global growth amid the ongoing Russo-Ukraine war and lockdowns in China. This has, not surprisingly, hit the risk/commodity-sensitive Aussie hard in recent sessions.

So long as the above trends continue, it is likely that the RBA’s recent shift to monetary tightening (they surprised markets with a 25 bps rate hike last week and rates are seen reaching 3.0% by the year’s end) will be unable to prevent further losses. A break below sub-0.7000 annual lows would open the door to a move lower to the next key area of long-term support around 0.6800.

AUD/USD traders will need to keep an eye on a barrage of commentary from Fed policymakers this week that could help further shape expectations for US monetary policy. But the main event of the week will be the release of US Consumer Price Inflation (CPI) data on Wednesday. Sky-high inflation has been the key motivator of the Fed’s recent hawkish shift. If the recent rally in US yields and the US dollar is to ease, traders will want to see evidence of an easing of inflationary pressures.