AUD/USD rallied sharply after the Fed introduced another round of liquidity measures to backstop the U.S. economy nN9N28J00Y and it briefly went positive for the day, but bears took control again, highlighting the aussie's downside risks.
Investors lack confidence to hold longs while the U.S. Senate remains locked in debate nL1N2BG0MP over a stimulus package.
Failure to agree an economic support package would hurt risk sentiment and boost the U.S. dollar.
Some of those concerns are highlighted by currency basis swaps and options.
dollar 3-month currency basis AUDCBS3M=ICAP swaps did not tighten after the Fed news, suggesting dollar funding pressure remain.
Vol premiums AUD1MRR= for AUD/USD puts over calls increased which implies options investors expect AUD/USD to fall.
Technicals also highlight downside risks.
Monthly RSI, although oversold, implies downside momentum remains.
Support sits at Friday's 0.5666 low.
If that low gives way another test of 0.5500 is likely.
Should risk sentiment improve AUD/USD longs will have to break 0.6000/30 resistance in order to take back some control.