The AUD/USD is expected to fall further towards 0.7200 as China and the Fed join the Ukraine-Russia crisis

As market sentiment deteriorates ahead of Monday’s European session, the AUD/USD reverts to an intraday low around 0.7250, down 0.48 percent on the day. The risk barometer validates the market’s recent pessimism, as well as its apprehension ahead of this week’s key Federal Open Market Committee meeting (FOMC).
The improved progress in Ukraine-Russia peace talks was not enough to entice AUD/USD buyers, as the latest Russian shelling and demands for Kyiv to back down, as well as Ukraine’s push for more sanctions against Moscow, did. On the same vein, International Monetary Fund (IMF) Managing Director Kristalina Georgieva stated on CBS’s “Face the Nation” programme that Russia may default on its debts as a result of unprecedented sanctions over its invasion of Ukraine, but this would not trigger a default.

In other news, China has reported the highest daily covid infections since May 2020 and has imposed strict lockdowns in two states, bringing back the virus woes and weighing on the AUD/USD. The strength of US Treasury yields is also a challenge to the quote, as the 5-year bond coupon renews at an all-time high above 2.0 percent amid record inflation expectations, according to the 10-year breakeven inflation rate from the St. Louis Federal Reserve (FRED) data.

Among these bets, the S&P 500 Futures and the ASX 200 both pared early Asian session gains. Furthermore, Chinese stocks are falling, despite market expectations for a rate cut by the People’s Bank of China (PBOC). As a result, risk aversion may continue to weigh on AUD/USD prices until commodities regain upside momentum, which is less likely given China’s challenges.

Nonetheless, a light calendar and anxiety ahead of this week’s FOMC meeting may allow the quote to recover some of its recent losses if the Australian jobs report matches upbeat forecasts and the RBA Minutes confirm Governor Philip Lowe’s recent comments supporting a rate hike by the end of 2022