- AUD/USD moves lower on Thursday, giving back a portion of the previous day’s gains to the weekly high.
- Expectations for an aggressive Fed rate hike revives USD demand and puts some downward pressure on the pair.
- Risk appetite helps limit deeper losses as investors now await the Fed Chairman’s speech.
The pair AUD/USD remains on the defensive at the start of the American session on Thursday, now holding near the lower end of its daily range around the 0.7425-0.7420 region.
As investors digested the upbeat RBA minutes released earlier this week, the AUD/USD pair found fresh sales on Thursday and trimmed a portion of the previous day’s gains to weekly highs. China promised to cut steel production in 2022, which in turn was seen as a key factor that acted as a headwind for the Australian dollar., a currency linked to the prices of raw materials. Apart from this, the appearance of some buying around the US dollar puts some downward pressure on the pair.
The dollar found support in a new upward move in US Treasury yields., buoyed by aggressive Fed expectations, and has now regained its initial lost ground to the weekly low. In fact, the markets seem convinced that the Fed will tighten its monetary policy at a faster pace to reduce inflation and has been mulling several 50 basis point rate hikes. This would have sent US 10-year real yields into positive territory for the first time in two years.
Having said that, risk appetite, as shown by a strong move higher in equity markets, caps the safe-haven US dollar and offers some support to the perceived riskier AUD. Aside from this, softer US macro data prevents USD bulls from opening aggressive positions and helps limit deeper losses for the AUD/USD pair. Investors also appear reluctant ahead of Fed Chairman Jerome Powell’s speech at an International Monetary Fund event later in the American session.
However, the bias seems firmly in favor of the USD bulls and supports the prospects for a resumption of the recent AUD/USD pullback from the yearly high hit on April 5th. That said, it will still be prudent to wait for sustained weakness below 0.7400 before confirming that this week’s bounce from the 0.7340 region, or the one-month low, is over.
AUD/USD technical levels
Source: Fx Street
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