- A broad USD strength triggers aggressive selling around AUD / USD on Wednesday.
- Upbeat expectations from the Fed, rising US bond yields, and risk aversion benefit the USD.
- A sustained break below the 0.7200 level will lay the groundwork for an extension of the slide.
Buying around the US dollar has rebounded during the European session on Wednesday and has dragged the AUD / USD pair to new weekly lows, around the 0.7225 region in the last hour.
Having repeatedly failed to find acceptance above the round 0.7300 level, the AUD / USD pair has seen aggressive selling on Wednesday and seen pressured by broad US dollar strength. Following the recent pullback from the one-year highs, the dollar has resumed its uptrend that has been underway since the Fed signaled that it would start reducing its bond purchases in late 2021.
Markets also appear to have begun pricing out prospects for a rise in interest rates in 2022 amid concerns that continued rising oil and energy prices will fuel inflation. This, in turn, has pushed the benchmark 10-year US government bond yield to the highest level since June, which has been seen as another factor that has continued to act as a tailwind for the USD.
In the meantime, concerns that a faster-than-expected rise in inflationary pressure could derail the global economic recovery it has affected investors’ appetite for assets with the highest perceived risk. This has been evident by a sharp pullback in the stock markets. Risk aversion has further benefited the safe haven USD and put additional downward pressure on the perceived riskier Australian dollar.
With the latest drop, the AUD / USD pair has now returned a significant portion of its gains recorded in the last three trading sessions. However, bears are likely to wait for a sustained break below the 0.7200 level before opening new positions. The next relevant support is near the 0.7175 zone, below which the pair appears ready to challenge the yearly lows, around the 0.7100 zone.
Market participants are now awaiting the release of the US ADP report on private sector employment for some momentum later at the start of the American session. This, along with US bond yields, will influence price dynamics around the USD. Apart from this, investors will take cues from the broader market risk sentiment to seize some short-term opportunities around the AUD / USD pair.
AUD / USD technical levels
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