AUD/USD price action encounters a pause from holiday-thin trading

The pair continues to consolidate around the 100-hour (red line) and 200-hour (blue line) moving averages ahead of European trading. The low today was at 0.7368 and tested the 50.0 retracement level of the recent upside move, before hugging the 100-hour MA now.

Stay below the hourly moving averages, and near-term bias turns more bearish. Stay above, and it becomes more bullish. But right now, we're at a crossroads.

It's been a quiet start to the day after US traders were away, offering little clues on which direction to go next. So, what are the obvious clues in trading so far today?

First, let's look at risk sentiment - which is arguably the most important factor driving trades these days. Stocks are lower in Asia, with Chinese stocks once again leading losses. That's a tick in the negative box for the Australian dollar.

There wasn't any key data releases but we had RBA's Heath with some positive comments, though it's not really substantial in the grand scheme of things. All in all, I'd argue that the pair should be a little lower and it currently is.

But it still only sits in a 20 pips range on the day. With the European trading calendar also not offering any blockbuster releases, the trading session should be driven by sentiment but so far we're not seeing too heavy risk-off flows.

Equities are lower but it's not really translating to Treasuries or bonds just yet. In the FX space, the yen is one of the lead gainers along with the dollar but ranges remain narrow and the yen is moving higher as the Nikkei is extending losses to more than 1% now.

But there isn't widespread contagion just yet, and that is helping to keep the aussie from moving lower for now. But we'll have to see what happens when European cash equity markets open later on in the day.

If there is a further flight to bonds and the yen/dollar, I expect more risk-off flows to play out and the aussie should weaken further later on.

Other than that, the aussie is also pinned down as a result of cross-flow selling against the kiwi. AUD/NZD buyers failed to sustain a daily break above the 38.2 retracement level @ 1.0936 and since then, the pair has been falling over the last few sessions and looks set to close in on a test of the 200-day MA (bluel ine) @ 1.0866.

In turn, that is helping to give the kiwi a boost on the day.