AUD/USD refreshes daily low amid softer risk tone, downside seems limited

• AUD/USD comes under some selling pressure on Monday and hits a fresh daily low in the last hour.
• A weaker tone around the equity markets is seen exerting pressure on the risk-sensitive Aussie.
• Bets for smaller Fed rate hikes keep the USD depressed and should help limit losses for the major.

The AUD/USD pair attracts some sellers following an early uptick to the 0.7120 area on Monday and remains on the defensive through the early European session on Monday. Spot prices drop to a three-day low, around the 0.7075 region in the last hour, though any meaningful downside still seems elusive.

A softer risk tone – as depicted by a weaker trading sentiment around the equity markets – is seen as a key factor driving flows away from the risk-sensitive Aussie. Despite China’s move to scale back its strict zero-COVID policy in December, the worst yet COVID-19 outbreak in the country has been fueling uncertainty about a strong economic recovery. This, in turn, tempers investors’ appetite for riskier assets and keeps a lid on any optimism in the markets.