AUD/USD extends slide below 0.6700, fresh yearly low before Powell

• AUD/USD is being sold heavily in reaction to a dovish assessment of the RBA’s monetary policy statement.
• The positive risk tone weighs on the safe-haven USD, although it does not benefit the risk-sensitive Aussie.
• The fundamental background supports the prospect of additional losses ahead of testimony from Fed Chairman Jerome Powell.

The pair AUD/USD it attracts new selling near the 0.6700 zone on Tuesday and falls to its lowest level since December 23 during the first half of the European session. The pair seems to have found acceptance below the 0.6700 level and seems vulnerable to prolong its bearish trajectory observed over the past month or so. At time of writing, the pair is trading at daily lows at 0.6675, shedding -0.77% on the day.

The Australian dollar weakens broadly in reaction to the signal from the Reserve Bank of Australia (RBA) that it is coming a pause in its 10-month rate hike cycle. First thing this Tuesday, the RBA raised its overnight cash rate as expected by 25 basis points to 3.6%, the highest level since June 2012. In the accompanying monetary policy statement, the RBA changed a reference from “further rate hikes” to “further monetary policy tightening may be necessary” and boosting expectations of a possible pause in the tightening of monetary policy.

In addition, RBA Governor Philip Lowe warned that the path to a soft landing for the Australian economy remains narrow and fueled fears that the economy will suffer a recession in the next 24 months. This, along with the release of disappointing Australian trade balance data, weighs on the national currency and drags AUD/USD lower for the second day in a row. The bulls, for their part, are getting no let up and seem unimpressed by subdued demand for the US dollar.

The broadly positive tone in the equity markets seems to weigh on the safe-haven USD, although it does not benefit the risk-sensitive Aussie or provide any support to the AUD/USD pair. Meanwhile, the latest move lower confirms a fresh break through more than a week old range support. Apart of this, growing acceptance that the Fed will stick with its hawkish stance for longer favors USD bulls and suggests that the path of least resistance for the pair is to the downside.

Traders, however, may refrain from entering aggressive positions and would prefer to wait for Fed Chairman Jerome Powell’s semi-annual testimony to Congress. Investors will be looking for further clues on the Fed’s future rate hike path, which will play a key role in influencing near-term USD price dynamics and provide further directional momentum to AUD/USD.

AUD/USD technical levels to watch