AUD/USD remains bearish below 0.6000, nears yearly lows

• AUD/USD meets fresh offers on Monday and approaches year low again.
• Aggressive bets on Fed rate hikes and risk-off sentiment lift the dollar and put some pressure on it.
• The fundamental backdrop favors the bears ahead of the crucial FOMC meeting.

The pair AUD/USD struggles to build on its modest intraday rally and attracts new sellers near the key psychological 0.6000 level on Monday. The intraday decline extends to the middle of the European session and drags the pair down to the 0.6675-0.6670 zone, its lowest level since June 2020, touched on Friday.

A combination of factors help the US dollar regain positive traction on the first day of a new week, which, in turn, is seen as putting pressure on the AUD/USD pair. Firm expectations that the Federal Reserve will raise interest rates at a faster pace to control inflation continue to act as a tailwind for the dollar. In addition, the prevailing risk aversion environment provides additional support to the dollar as a safe haven and helps to drive flows away from the risk sensitive Aussie.

Market sentiment remains fragile on concerns that rapidly rising borrowing costs will lead to a deeper global economic downturn. This, coupled with headwinds stemming from China’s covid-zero policy, the protracted war between Russia and Ukraine, and the deteriorating relationship between the US and China, temper investors’ appetite for higher-value assets. risk. Indeed, US President Joe Biden said the US will defend Taiwan in the event of an attack by China and triggered a new leg down in equity markets.

The fundamental backdrop appears to be leaning heavily in favor of bearish traders and supports the prospects for a further short-term depreciation move for the AUD/USD pair. Investors, however, might refrain from making aggressive bets and would prefer to stay on the sidelines ahead of the two-day FOMC policy meeting that starts on Tuesday. The US central bank is due to announce its decision on Wednesday and is widely expected to raise interest rates by at least 75 basis points.

Markets have also priced in a slim chance of a 100 basis point hike. Therefore, the focus will be on the so-called dot-plot, which together with updated economic projections and Fed Chairman Jerome Powell’s remarks at the post-meeting press conference, could provide new clues about the prospects for US central bank policy. This, in turn, will play a key role in influencing USD price dynamics and helping determine the next leg of a directional move for the AUD/USD pair.

Technical levels