AUD/USD falls below 0.7500, looks vulnerable near weekly lows

• AUD/USD extends previous day’s sharp losses and falls to a new weekly low.
• The Fed’s dovish outlook and softer risk tone benefit the USD and put pressure on the pair.
• A pullback in US bond yields caps USD’s rally and helps defend deeper losses.

The pair AUD/USD remains on the defensive during the first half of the European session on Thursday and falls to weekly lows around the 0.7475 region.

The pair found some continuation selling for the second day in a row on Thursday and extended this week’s sharp pullback from the highest level since June 2021 around the 0.7660 zone. The US dollar held firm near a two-year high hit on Tuesday amid dovish Fed outlookwhich in turn was seen as a key factor putting downward pressure on the AUD/USD pair.

In fact, the minutes of the FOMC meeting for March 15-16 published on Wednesday showed that the authorities were willing to raise interest rates by 50 basis points amid concerns that inflation had spread through the economy. The minutes also showed general agreement on the need to reduce the central bank’s huge balance sheet at a maximum rate of 95,000 million dollars per month to tighten financial conditions.

The aggressive plans of the Fed, coupled with fading hopes for a diplomatic solution to end the war in Ukraine, weighed on investor sentiment. This was evident by a further decline in the equity markets, which further benefited the safe haven USD and moved money flows away from the perceived higher risk Australian dollar. That said, a pullback in US Treasury yields capped the USD’s rally.

Apart of this, a dovish comment from the Reserve Bank of Australia, coupled with rising commodity prices, helped limit deeper AUD losses, a currency linked to commodity prices, at least for now. It is worth remembering that the RBA withdrew its promise to be patient in tightening monetary policy and noted that the national economy remains resilient, and spending is picking up after the Omicron setback.

However, acceptance below the psychological level of 0.7500 suggests that the AUD/USD has reached a near-term top and supports the prospects for an extension of the corrective decline. Investors are now awaiting US initial jobless claims data, which along with US bond yields, will influence USD price action and provide some momentum to the AUD/USD pair.

AUD/USD technical levels