The AUD/USD pair is showing bullish momentum and has crossed 0.6650 during Monday's trading session. It appears that the Australian Dollar is extended its intraday recovery ahead of the US PMI data.
For now, the spot was trading near the 0.6760 level, which is a 1-month top and shows bullish strength. Analysts believe that AUD bulls will try to extend the bullish momentum further and cover some distance from the 200 SMA.
US Dollar On Backfoot Amid Risk On
The oil market is going through some heavy volatility as oil prices have made record daily gains. On top of that, the current risk-on environment of the market is moving the buyers away from the US Dollar.
These factors favor the Australian Dollar, which is regarded as risk-sensitive and thus gains strength during risk-on periods.
In addition, the RBA monetary policy also hinted towards short-covering which is also adding strength to the AUD/USD pair.
However, there are some analysts who believe that the current market optimism will be short-lived. After all, the global economic downturn is turning into a serious reality, and no one can turn away from it.
Recently, the data from the Asian region also reaffirmed the worries about the global economic downturn. In Japan, manufacturing activity has contracted, and we see similar trends in China as well.
Furthermore, there are also speculations in the market that the increase in energy prices will force the Fed to continue its rate hikes policy. In turn, this will strengthen the USD, and we could see a bearish move in the AUD/USD.
That's why it appears that the recent action in AUD/USD needs some solid bullish momentum behind it. Other than that, the fundamental grounds for the AUD/USD also need to favor the Australian Dollar if we are to see more AUD/USD action.
For now, all the eyes are now on the US PMI data as it will have a major effect on the AUD/USD and other USD-denominated pairs.