AUD/USD rises to one-and-half-month top, eyes mid-0.7000s as USD selling remains unabated

• AUD/USD jumps to a one-and-half-month high on Monday amid sustained USD selling bias.
• Diminishing odds for more aggressive Fed rate hikes continue to undermine the greenback.
• Recession fears weighed on investors’ sentiment and could help limit any further USD losses.
• Investors now eye RBA on Tuesday and key US macro releases this week for a fresh impetus.

The AUD/USD pair prolongs its intraday ascent through the first half of the European session on Monday and jumps to a one-and-half-month low, around the 0.7035 region in the last hour.

The US dollar adds to its post-FOMC losses and edges lower for the fourth successive day, which turns out to be a key factor pushing the AUD/USD pair higher. In fact, the USD Index drops to its lowest level since July 5 amid diminishing odds for more aggressive policy tightening by the Federal Reserve. Against the backdrop of a less hawkish FOMC decision last week, the Advance US Q2 GDP report released on Thursday confirmed a technical recession. This, in turn, fueled speculations that the Fed would adopt a more gradual approach towards raising interest rates, which continues to undermine the USD.

The risk of a global economic downturn, meanwhile, resurfaces following the disappointing release of the official Chinese Manufacturing PMI over the weekend. This now seems to have tempered investors' appetite for perceived riskier assets, which is evident from a weaker tone around the equity markets. The anti-risk flow, along with a goodish rebound in the US Treasury bond yields, could limit losses for the safe-haven buck and cap the risk-sensitive aussie. Investors might also refrain from placing aggressive bets ahead of this week's key central bank event risk and important US macro data.

A rather busy week kicks off with the release of the US ISM Manufacturing PMI, later during the early North American session. The data might provide some impetus to the AUD/USD pair ahead of the Reserve Bank of Australia policy decision, scheduled to be announced during the Asian session on Tuesday. The focus, meanwhile, would remain on the closely-watched US monthly jobs report, popularly known as NFP on Friday. This would play a key role in influencing the USD price dynamics and help determine the next leg of a directional move for the AUD/USD pair.

Technical levels to watch