AUD / USD falls to 2-week lows, looks vulnerable to extend slide

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  • AUD / USD is under renewed selling pressure Tuesday following comments from RBA Governor Lowe.
  • Nervousness around Covid-19 and falling iron ore prices put additional downward pressure on the AUD.
  • The bulls do not seem impressed by a subdued action around the USD, while the focus remains on the US CPI report.

The pair AUD/USD it has extended its intraday slide at the start of the European session on Tuesday, falling to nearly two-week lows around the 0.7330 region. At time of writing, the pair is recovering slightly from lows, but remains negative on the limited day below 0.7350.

The pair has struggled to capitalize on the modest gains of the previous day and has encountered new sales on Tuesday after the Governor of the Reserve Bank of Australia, Philip Lowe, downplayed speculation about rate hikes. In a speech to the Anika Foundation, Lowe has argued that it will take time to drive faster wage growth and has reiterated that it does not expect a rate increase before 2024.

Lowe has also staked the downside risks associated with the recent surge in new cases infected with the Delta variant of the coronavirus. Apart from this, the fall in iron ore prices, together with concerns about the Delta variant, has been seen as another factor that has weighed on demand for the Australian dollar, a currency linked to commodity prices. The intraday decline does not appear to be affected by the prevailing risk appetite.

Even a subdued action around the price of the US dollar has lent little support to the AUD / USD pair. USD bulls now appear to have moved on the sidelines, preferring to wait for a new catalyst in Tuesday’s release of the latest US consumer inflation figures. The data could provide clues to the likely timing of the Fed’s tapering plan and provide new directional momentum.

The producer price index US PPI for August posted the largest gain since November 2010 and indicated that higher inflation could persist for some time. A stronger US CPI report will reaffirm expectations and pave the way for an imminent announcement by the Fed to begin reversing its massive pandemic-era stimulus.

The fundamental backdrop appears to tilt firmly in favor of the pair’s bears and supports the prospects for a further short-term downside in AUD / USD. Therefore, any recovery attempt could now be seen as a selling opportunity and risks ending fairly quickly before the FOMC meeting on September 20-21.

AUD / USD technical levels

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