Corrects from multi-month top, downside seems limited ahead of RBA on Tuesday

• AUD/USD retreats after touching over a fresh five-month top during the Asian session on Monday.
• The cautious market mood underpins the safe-haven USD and weighs on the risk-sensitive Aussie.
• The technical setup favours bullish traders as the focus shifts to the RBA policy meeting on Tuesday.

The AUD/USD pair attracts some intraday sellers in the vicinity of the 0.6700 mark, or over a five-month top touched during the Asian session on Monday and drops to a fresh daily low in the last hour. Spot prices currently trade around the 0.6660 area, down just nearly 0.10% for the day, and the downside is sponsored by a modest US Dollar (USD) uptick.

Investors turn cautious in the wake of a further escalation of tensions in the Middle East and fears of another COVID-19-like respiratory illness outbreak in China cap the recent upswing in the global equity markets. This, in turn, is seen lending some support to the safe-haven Greenback and undermining the risk-sensitive Australian Dollar (AUD). Apart from this, some repositioning trade ahead of the Reserve Bank of Australia (RBA) policy meeting on Tuesday exerts downward pressure on the AUD/USD pair.

From a technical perspective, the recent sustained move beyond the very important 200-day Simple Moving Average (SMA) and Friday’s close above the 61.8% Fibonacci retracement level of the July-October fall was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart are comfortably in the positive territory and are still far from being in the overbought zone. This suggests that the path of least resistance for the AUD/USD pair is to the upside amid dovish Federal Reserve (Fed) expectations. 

Meanwhile, any further decline could find support near the 0.6600 mark ahead of last week’s swing low, around the 0.6570-0.6565 region. Some follow-through selling, however, could drag the AUD/USD pair further towards the 0.6530 intermediate support en route to the 0.6500 psychological mark. This is followed by the 100-day SMA, around the 0.6475-0.6470 zone, and the 0.6430 area, or the 50-day SMA. Failure to defend the said supports might negate the positive outlook and shift the near-term bias in favour of bearish traders.

On the flip side, the multi-month peak, or levels just ahead of the 0.6700 round figure, now becomes an immediate hurdle. Bulls might wait for sustained strength beyond the said barrier before placing fresh bets. The AUD/USD pair might then climb to the next relevant hurdle near the 0.6740 region before aiming to reclaim the 0.6800 mark. The momentum could get extended further towards the July monthly swing high, around the 0.6895 region, with some intermediate resistance near the 0.6845-0.6850 region.

AUD/USD daily chart

Technical levels to watch