AUD/USD trades with modest losses around mid-0.7200s, downside remains cushioned

• Resurgent USD demand prompted some selling around AUD/USD on Monday.
• The risk-on mood helped limit the downside for the perceived riskier aussie.
• Investors look forward to this week’s key US macro data for a fresh impetus.

The AUD/USD pair maintained its offered tone heading into the European session and was last seen trading just a few pips above the daily low, around mid-0.7200s.

The US dollar made a solid comeback on the first trading day of the new year and reversed a major part of Friday's decline to the lowest level since November 30. This, in turn, was seen as a key factor that prompted some selling around the AUD/USD pair. That said, the underlying bullish sentiment in the markets extended some support to the perceived riskier aussie and helped limit any deeper losses.

Despite the continuous surge in new COVID-19 cases, investors remain optimistic over signs that the Omicron variant might be less severe than feared and is unlikely to derail the economic recovery. This was evident from a generally positive tone around the equity markets, which acted as a headwind for the safe-haven greenback amid thin trading on the back of an extended weekend in Europe and the US.

Investors also seemed reluctant to place aggressive directional bets, rather preferred to wait for a fresh catalyst from important US macro data scheduled at the beginning of a new month. This week's US economic docket highlights the release of ISM PMIs and the ADP report on private-sector employment. The focus, however, will remain on the closely-watched US monthly jobs report (NFP) on Friday.

This, in turn, makes it prudent to wait for a strong follow-through selling before confirming that the AUD/USD pair has topped out in the near term. That said, bulls are likely to wait for a sustained strength beyond the 0.7275-80 region before positioning for an extension of the recent bounce from the vicinity of the key 0.7000 psychological mark touched in December.

Technical levels to watch