- AUD/USD met fresh supply on Wednesday amid a strengthening dollar.
- The Fed’s outlook pushed DXY to a near two-year high.
- In a better mood in equity markets, AUD/USD could find support.
The AUD/USD pair maintained its offered tone during the first half of the European session and was last seen trading near the daily low around the 0.7420 region.
After a first rally to the 0.7475 area, the AUD/USD pair rallied in a fresh bid on Wednesday and has now moved well within striking distance of the three-week low hit the previous day. The US dollar continued to receive support from the prospects of a tightening of monetary policies by the Federal Reserve and rose to its highest level since May 2020.
Despite signs that core inflation in USA is easing, investors seem convinced that the Fed will raise interest rates at a faster pace. Bets were bolstered by comments from Fed Governor Lael Brainard that the US central bank will proceed with a series of interest rate hikes as well as an effort to cut its balance sheet. This, coupled with a nice rally in US Treasury yields, continued to lend some support to the greenback.
That said, a solid recovery in risk sentiment – as represented by a generally positive tone around equity markets – capped the dollar and extended support for the Aussie. However, the failure in Asian hours at the 0.7500 zone and the subsequent drop left the pair weak.
The technical setup supports the prospects for an extension of the recent sharp pullback from the 0.7660 region, or the highest level since June 2021. Sustained weakness below the 0.7400 mark will reaffirm the negative bias and could drag the pair towards the 0.7330-0.7325 region. Such an area marks the rising support of the trend line that extends from the low of the year and should act as a turning point.
Market participants now look forward to US data with the Producer Price Index later at 1230 GMT. This, coupled with US bond yields, will influence dollar price dynamics and provide a further boost to the AUD/USD pair.
Technical levels
Source: Fx Street
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