The AUD/USD recovery after the flash-crash from January 3 has stalled above 0.72, where the pair encountered a local resistance area. The price was rejected from a mid-December top and dropped to two-week low of 0.7120 on Tuesday. By the way, the move down is rather measured and gradual due to a muted USD demand amid the ongoing US government shutdown and a more cautious tone by the Federal Reserve.
One of the key risks for AUD/USD is the slowing Chinese economy that grew at its slowest rate in almost three decades in 2018 and lost more steam in the fourth quarter. The latest IMF forecast has fuelled concerns over the global economy, which according to the Fund’s estimates will grow by 3.5% in 2019, the slowest in three years. In this context, another source of potential risk for aussie is the three-day World Economic Forum set to begin today in Davos, Switzerland.
The attendees will discuss the outlook for global economy in 2019 and could express concern over the signs of weakness. The possible downbeat comments during the event could put the Australian currency under the additional selling pressure.
As a result, AUD/USD may challenge the 0.71 support in the days to come. On the other hand, still weak USD demand will cap the downside impetus in the currency pair.