AUD/USD: Recent challenges to sentiment probe bulls around 0.7650

AUD/USD eases to 0.7640 after an initial attempt to extend Friday’s run-up amid the early Monday morning in Asia. The Aussie pair gained the most in three weeks on Friday amid US dollar pullback and upbeat market sentiment. Also favoring the quote could be weaker Income and Spending data as well as soft figures of the Fed’s preferred inflation gauge. However, the weekend updates have been challenging but are yet to respond to.

Virus, trade and geopolitical fears battle stimulus, vaccine optimism…

Although China versus the West and the coronavirus (COVID-19) resurgence in Europe is challenging the bulls, not to forget North Korea and Iran, US President Joe Biden’s $3. Infrastructure plan and boost to vaccinations favor the risks. Also on the positive side could be receding fears of the reflation.

Recently, US Trade Representative Ms. Katherine Tai crossed wires, via Wall Street Journal, for the first time after taking the office. The US diplomat held America’s tough stand against China while saying, “The U.S. isn’t ready to lift tariffs on Chinese imports in the near future, but might be open to trade negotiations with Beijing.”

On the same line, German Chancellor Angela Merkel highlights the need for curfews and signaled using Federal law if needed to tighten restrictions.

Elsewhere, North Korea and Iran are alleged to secretly build weapons against international law whereas chatters around Hong Kong, Taiwan and Xinjiang are also sentiment-negative news.

At home, Queensland's first local transmission of the COVID-19 triggered fresh virus woes in the Oz nation. The latest news from Reuters convey three-day lockdown in the city of Brisbane, Australia's third most pupulous city and capital of Queensland state.

However, the recent easing of the US Core PCE index, Spending and Income data recede the American reflation fears and trigger the risk-on mood. Also favoring the optimists could be upbeat US GDP and President Biden’s push for faster vaccinations. Additionally, chatters that the $3.0 trillion US infrastructure plan is on the way offer extra positive for the market.

Amid these plays, Wall Street offered upbeat play on Friday whereas the US dollar index (DXY) eased from the multi-day top. However, the US 10-year Treasury yield stayed on the recovery mode while eyeing to regain the 1.70% threshold.

Looking forward, risk news is likely to keep the driver’s seat amid a lack of major data/events during the holiday-shortened week.

Technical analysis

Not only a clear bounce-off three-month-old horizontal support area around 0.7557-62 but a daily closing beyond 100-day SMA and the early March lows near 0.7620-25 also favor AUD/USD bulls to eye the 0.7700 threshold during the further upside.