AUD/USD jumps to one-week high, closer to mid-0.6800s amid weaker USD/risk-on impulse

• AUD/USD gained traction for the second straight day amid the ongoing USD corrective pullback.
• Diminishing odds for more aggressive Fed rate hikes, the risk-on impulse undermined the USD.
• Descending trend-channel breakout further contributed to the strong intraday positive move.
• Traders now eye Tuesday’s RBA minutes amid absent relevant US economic data on Monday.

The AUD/USD pair gained positive traction for the second successive day on Monday and recovered further from over a two-year low, around the 0.6680 region touched last week. The momentum lifted spot prices to a one-week high, around the 0.6835-0.6840 area during the first half of the European session and was sponsored by the ongoing US dollar profit-taking slide.

Fed Governor Christopher Waller and St. Louis Fed President Jim Bullard - the biggest Fed hawks - said last Thursday that they were not in favour of the bigger rate hike. Adding to this, Atlanta Fed President Raphael Bostic warned on Friday that moving too dramatically could undermine positive aspects of the economy and add to the uncertainty. This, in turn, forced investors to scale back their expectations for a supersized 100 bps Fed rate hike move in July, which prompted some US dollar profit-taking from a two-decade high.

Apart from this, the risk-on impulse - as depicted by strong gains across the global equity markets - led to an extension of the USD corrective pullback and benefitted the risk-sensitive aussie. The momentum assisted the AUD/USD pair to break through a one-month-old descending trend-channel hurdle. This, in turn, was seen as another factor that provided an additional boost to spot prices. That said, growing recession fears, along with rising COVID-19 cases in China, kept a lid on any meaningful upside for the China-proxy Australian dollar.

In the absence of any major market-moving economic releases, the AUD/USD pair remains at the mercy of the USD price dynamics. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities. The focus, however, would remain on the minutes of the Reserve Bank of Australia's latest policy meeting, scheduled for release on Tuesday.

Technical levels to watch