- The RBA’s decision on Tuesday to extend bond purchases weighed on the Australian dollar.
- The rally in US bond yields sustained the USD and sparked further selling around the AUD / USD.
- Sustained weakness below the 0.7400 mark could have set the stage for further weakness.
The pair AUD/USD It continued to lose ground during the mid-European session and fell to three-day lows, further below 0.7400 in the last hour.
The pair rose shortly after the Reserve Bank of Australia moved ahead on Tuesday with a plan to cut its bond buying to A $ 4 billion a week. However, an extension of the purchase period from November 2021 to February 2022 disappointed market participants. This, in turn, weighed on the Australian dollar and prompted further selling around the AUD / USD pair.
On the other hand, a strong positive follow-up move in US Treasury yields helped the US dollar rebound even further from the month-long lows hit in reaction to the sad news from the NFPs. In fact, the yield on the benchmark 10-year US government bond surpassed 1.36% amid expectations that the Fed could still begin to reduce its pandemic-era stimulus in November.
Chances of the Fed announcing a gradual reduction at the September meeting faded after the release of the monthly US jobs report on Friday, which showed the US economy adding the fewest jobs. in seven months. That said, the additional details kept hopes alive for an imminent Fed phase-down announcement later this year and continued to lift US bond yields.
With the last leg down, the AUD / USD pair has now retreated around 75-80 pips from the daily swing highs, near the 0.7465-70 region. The decline has been solely sponsored by a broad-based USD strength. Even the prevailing risky environment failed to impress bull traders or provide support for the perceived riskier Australian.
Meanwhile, an extension of the corrective pullback below the 0.7400 round level could already have laid the foundation for a further short-term depreciation move. In the absence of major economic releases to move the US market, US bond yields will play a key role in influencing USD price dynamics and provide some boost to the AUD / USD pair.
Technical levels
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