The Australian currency will gain further support if risk conditions are benign and the US dollar remains under pressure, but there looks to be little value in chasing longs at current levels.
There was little changed in Australian dollar positioning according to the latest COT data with net long, non-commercial Australian dollar contracts close to 60,000. The data suggests that there has been no significant move out of the Australian currency despite the increase in North Korean tensions.
AUD/USD found support on approach to the 0.7900 level in local trading on Monday with the US currency unable to gain any significant traction.
There was further trepidation surrounding the North Korean situation with nervousness in light of military exercises between the US and South Korea this week fuelling concerns surrounding a potential North Korean response.
AUD/USD drifted lower in early European trading, but there was no challenge on the 0.7900 level and a fresh round of US currency selling pushed the pair to a test of 0.7950.
US bond yields were little changed on the day with no significant impact on currency rates.
After opening lower the S&P 500 index moved into positive territory late in the European session.
Although there was a mixed trend in commodity prices with some correction in zinc, the underlying tone was robust which provided net support to the Australian currency.
Risk conditions will continue to be monitored closely and the Australian dollar will be vulnerable if equities come under renewed selling pressure. AUD/USD is likely to hit selling interest close to 0.8000, but a sharp turnaround in the US dollar will be needed to spark substantial losses for the pair.
AUD/USD 4-Hour Chart