- AUD/USD meets fresh sales on Friday and falls to a two-year low.
- Expectations for an aggressive Fed rate hike are boosting the dollar and putting downward pressure on the pair.
- Risk aversion also benefits the dollar and weighs on the risk-sensitive Aussie.
The pair AUD/USD finds fresh sales after an initial rally to the 0.6725 region and turns negative for the second day in a row on Friday. This also marks the third day of negative movement in the previous four and drags the pair at the lowest level since June 2020, around the 0.6670 area during the first half of the European session.
As investors look beyond the upbeat Chinese economic data released earlier this Friday, with the resurgence in demand for the US dollar turning out to be a key factor putting downward pressure on the AUD/USD pair. The dollar continues to receive support from the expectations that the Fed will tighten its monetary policy at a faster pace and expectations were reaffirmed by the stronger US CPI report.
In fact, markets have been pricing in the possibility of a 100 basis point rate hike at the next FOMC meeting on September 20-21. In addition, the US central bank is expected to raise rates by 75 basis points again in November. This, along with risk aversionboosts safe-haven money flows into the USD and weighs on the risk-sensitive Aussie.
The prospect of rapid rises in interest rates, coupled with economic headwinds stemming from the COVID-19 lockdowns in China and the protracted war between Russia and Ukraine, have fueled recession fears. This, in turn, reduces investors’ appetite for riskier assets, which is reflected in a further move lower in equity markets, which tends to benefit the safe-haven USD.
With the latest move lower, the AUD/USD pair confirms a fresh break below the 0.6700 round level. A subsequent drop below the previous low around the 0.6680 area could have already set the stage for further losses. Therefore, a continuation weakness towards the intermediate support at 0.6645, on the way to the 0.6600 level, looks like a distinct possibility.
AUD/USD technical levels
Source: Fx Street
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