- AUD/USD falls to its lowest level since May 2020 amid broad-based USD strength.
- Bets on more aggressive rate hikes from the Fed and high US bond yields support the dollar.
- The risk-off mood further benefits the dollar and weighs on the risk-sensitive Aussie.
The pair AUD/USD continues to lose ground during the first half of the European session on Friday and falls to the 0.6565 zone or its lowest level since May 2020.
The US dollar gets fresh offers on the last day of the week and reaches a new 20-year high, which turns out to be a key factor putting downward pressure on the AUD/USD pair. On Wednesday, the Federal Reserve took a more aggressive tone, signaling that it will carry out more aggressive rate hikes to curb inflation. This, in turn, continues to support elevated US Treasury yields and continues to act as a tailwind for the USD.
Indeed, the interest rate sensitive two-year US government bond yield hit a new 15-year high and the 10-year Treasury yield jumped to its lowest level on Thursday. highest since 2011. Investors, meanwhile, continue to worry that rapidly rising borrowing costs will lead to a deeper global economic downturn. This, in turn, reduces investors’ appetite for riskier assets and reinforces the demand for the traditional dollar as a haven.
Apart from this, economic headwinds stemming from China’s covid-zero policy and the risk of a further escalation in the conflict between Russia and Ukraine, have been fueling recession fears. This is seen as another contributing factor in moving flows away from the risk-sensitive Aussie. With oscillators still far from oversold territory, the fundamental backdrop supports the prospects for an extension of the downside move for the AUD/USD pair.
Market participants are now awaiting the release of the US PMI data, due later during the North American session. This, along with US bond yields and Fed Chairman Jerome Powell’s speech at an event in Washington, will influence USD price dynamics and provide some momentum to the AUD/USD pair. Traders will follow signs of broader market risk sentiment to take advantage of short-term opportunities heading into the weekend.
Technical levels
Source: Fx Street
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