AUD/USD drops to yearly low around 0.6965 as DXY refreshes two decades amid flight to safety

  • AUD/USD remains down for the third day in a row as sellers approach the 2022 low.
  • DXY hits new high since 2002 as market rush to risk safety intensifies ahead of European open.
  • China, Russia and inflation are the main challenges for global markets.
  • Mixed data from Beijing, pessimistic iron ore prices also reinforce the downside bias.

AUD/USD bears are in full swing as the wave of risk aversion drives the quote to the yearly low of 0.6966, down 1.10% around 0.6995 at press time. Monday morning in Europe.

The pair’s latest drop in the Risk Barometer could be linked to the US Dollar’s rise, mainly due to the appeal of safe havens and growing rumors that the Fed won’t be able to defend rate hikes for long. of “only 50 basis points”. That said, the US Dollar Index (DXY) refreshes its highest level since November 2002, up 0.38% to 104.10 the latest.

Mixed trade figures from China are also weighing on AUD/USD prices to the south, along with a drop in prices for Australia’s main export, iron ore.

Although China’s trade balance improved in USD, to +51.12 billion vs. +50.65 billion expected and +47.38 billion previously, the numbers in CNY terms are not impressive as the trade surplus narrowed to 325.08 billion yuan from 441.88 billion yuan expected and CNY 300.58 billion last seen.

Of note, iron ore prices fall 6.0% as restrictions on activity in the world’s largest consumer of the metals, China, weigh on AUD/USD prices.

Elsewhere, fears that Russia will not bend the knee and may continue its approach to invade Ukraine are also putting downward pressure on the pair. Recently, the Group of Seven (G7) countries have imposed various sanctions on Russia, but Moscow remains ready to celebrate the victory of the Second World Wall with an extravagant military parade, as well as to officially announce a declaration of war against the ‘Ukraine.

More importantly, growing fears of global stagflation, due to soaring inflation and tighter monetary policy, act as an additional catalyst to drown out the AUD/USD pair.

Amid these games, 10-year US Treasury yields remain firmer around the highest levels since late 2018, while equity futures fall more than 1.0% at press time.

Next, risk catalysts may keep AUD/USD prices under pressure towards the yearly low ahead of Tuesday’s National Australia Bank (NAB) sentiment data. More important will be Wednesday’s inflation figures for China and the United States, as well as consumer confidence from Westpac in Australia.

Technical analysis

A sharp break down of the 0.7000 threshold, comprising the support line of a 2-month-old descending wedge chart pattern, directs AUD/USD prices towards the yearly low around 0.6965.