- AUD/USD witnesses a strong sell-off on Thursday and sinks to a near two-year low.
- Expectations of an aggressive Fed rate hike continue to support the USD and put downward pressure on the pair.
- Recession fears also benefited the safe-haven USD and pushed flows away from the perceived riskier AUD.
The pair AUD/USD appears to have entered a bearish consolidation phase and oscillates in a range near its lowest level since June 2020just below the 0.6900 level.
Following the previous day’s price swings, the AUD/USD pair has seen strong selling on Thursday and was seen pressured by strong underlying bullish sentiment around the US dollar. Despite signs that inflationary pressures in the world’s largest economy are peaking, markets seem convinced that the Federal Reserve will tighten its monetary policy at a faster pace. This, in turn, continued to act as a tailwind for the USD and dragged the pair lower.
In fact, money market futures are pricing in an 81% chance of a big 75 basis point rate hike in June, amid concern that China’s zero-covid policy and war in Ukraine continue to drive up consumer prices. The prospect of rapid interest rate hikes in the US, coupled with recession fears, weighed on investor sentiment. This further favored the safe-haven US dollar and helped move money flows away from the perceived riskier AUD.
The move down executed some short-term stop orders placed near the previous yearly low, around the 0.6910 region. The subsequent technical selling was seen as another factor aggravating the bearish pressure and contributing to the sharp drop in the AUD/USD pair.. However, the oversold conditions on the hourly charts prevented the bears from opening new aggressive positions. However, any significant recovery looks difficult and risks fading quickly.
Market participants are now awaiting the US PPI Producer Price Index, to be released later at the start of the American hou session. The data, along with US bond yields, will influence USD price dynamics and provide some momentum to the AUD/USD pair. Investors will also be following signs of broader market risk sentiment to take advantage of some short-term opportunities.
AUD/USD technical levels
Source: Fx Street
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