AUD/USD extends losses after RBA meeting and plunges to yearly lows ahead of Powell

• AUD/USD plunges to a fresh yearly low on Tuesday, pressured by a combination of factors.
• A dovish assessment of the RBA’s monetary policy statement weighs heavily on the national currency.
• The Fed’s aggressive expectations prop up the dollar and contribute to the sharp intraday decline.
• Acceptance below 0.6700 adds to bearish pressure ahead of Fed Chairman Powell’s testimony.

The pair AUD/USD comes under intense selling pressure on Tuesday and falls to its lowest level since late December ahead of the North American session. The pair is currently sitting around the 0.6660-0.6665 zone, losing almost 1% on the day, and looks vulnerable to further decline.

The Australian dollar is turning out to be the worst-performing G10 currency, amid dovish assessment of the Reserve Bank of Australia’s (RBA) monetary policy statement, which, along with renewed purchases of US dollars, exerts strong pressure on the AUD/USD pair. Indeed, the Australian central bank raised its cash rate to the highest level since June 2012 early on Tuesday, though it signaled it may be nearing the end of its rate-raising cycle. Speculation was fueled by the accompanying policy statement, in which the RBA changed a reference from “further rate hikes” to “further monetary policy tightening would be necessary.”

On the contrary, the Federal Reserve is expected to maintain its hawkish stance and raise interest rates for longer to control inflation, which remains high. This, in turn, continues to act as a tailwind for the USD, further contributing to the strongly offered tone surrounding the AUD/USD pair. The strong intraday fall, for its part, confirms the break below a support of the operating Range from a week ago, around the 0.6690 area, and further aggravates the downward pressure. This, coupled with China’s more conservative outlook for GDP growth in 2023, suggests that the path of least resistance for the China representative Aussie is to the downside.

Bears, however, could pause and refrain from making further bets before Fed Chairman Jerome Powell’s semiannual appearance before the Senate Banking Committee, scheduled for later in the US session. Investors will look for further clues on the Fed’s future rate hike path, which will play a key role in influencing near-term dollar price dynamics and determining the next leg of a directional move for the AUD. /USD. However, the fundamental undercurrent seems to be leaning firmly in favor of the bears. Therefore, any significant recovery attempt could still be seen as a selling opportunity and remain capped.

Technical levels to watch