- AUD/USD comes under renewed selling pressure on Wednesday amid a resurgence in dollar demand.
- The Fed’s aggressive rate hike bets, rising US bond yields and risk aversion drive lift the dollar.
- However, bears remain on the sidelines ahead of Thursday’s key Australian employment report.
The AUD/USD pair fails to capitalize on its modest recovery gains posted in the last two trading sessions and finds itself in fresh supply on Wednesday. The pair maintains its bid tone throughout the early American session and is currently hovering near the daily low around the 0.6280-0.6275 region.
The US dollar is recovering strongly after a recovery in US Treasury yields and is proving to be a key factor putting downward pressure on the AUD/USD pair. Indeed, the benchmark 10-year Treasury hits its highest level since 2008 and the interest rate-sensitive 2-year US government bond yield rises to a new 15-year high amid the Fed expectations.
Markets seem convinced that the US central bank will maintain its aggressive tightening policy to control inflation and have been pricing in another 75 basis point rate hike in November. This, in turn, continues to support elevated US Treasury yields. This coupled with the boost from risk aversion lifts the safe haven dollar and weighs on the risk sensitive Australian dollar.
Market sentiment remains fragile amid growing concerns about economic headwinds stemming from rapidly rising borrowing costs, geopolitical risks and China’s strict zero COVID policy. The anti-risk flow is evident in a new leg down in the equity markets. This largely overshadows the mixed US housing market data and does not dent the dollar’s intraday rally.
Aside from this, the RBA’s decision to slow the pace of monetary policy tightening earlier this month suggests that the path of least resistance for AUD/USD is to the downside. Therefore, a further drop below the 0.6200 round level, in order to challenge the yearly low near the 0.6170 region touched last week, looks like a distinct possibility.
That said, traders seem reluctant to make aggressive bearish bets, preferring instead to wait for monthly employment data from Australia, due during the Asian session on Thursday. Meanwhile, dollar price dynamics will continue to weigh on the AUD/USD pair, which coupled with broader risk sentiment should allow traders to take advantage of short-term opportunities.
Technical levels to watch
Source: Fx Street
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