- AUD/USD fell to a more than two-month low on Thursday amid incessant USD buying.
- Prospects for more aggressive rate hikes from the Fed continued to act as a tailwind for the dollar.
- USD bulls unaffected by disappointing Q1 GDP release from the US.
The pair AUD/USD witnessed an intraday reversal from 0.7160 and fell to its lowest level since February 7th during the early American session. The pair, however, managed to bounce a few pips in reaction to dismal US GDP numbers and was last seen trading just below 0.7100, down more than 0.40% for the day.
Broad-based US dollar strength remains a key currency market theme on Thursday and growing acceptance that the Fed will tighten monetary policy at a faster pace to curb runaway inflation. Bets were bolstered by aggressive comments from influential members of the FOMC last week, including Fed Chairman Jerome Powell.
The Fed is expected to raise interest rates by 50 bps when it meets on May 3-4, and again in June and July, finally raising rates to around 3.0% by the end of the year. USD buying did not slow down after the Advance US GDP report showed the economy unexpectedly contracted 1.4% in the first quarter of 2022.
This, coupled with risk-on markets, acted as a headwind for the safe-haven USD and extended some support to the perceived riskier Aussie. However, the disappointment was largely offset by a sharp rise in the GDP price index, which jumped to 8% in the first quarter and reaffirmed prospects for a rapid Fed rate hike.
The fundamental backdrop appears to be heavily tilted in favor of the USD bulls and supports the prospects of a further short-term depreciation move for the AUD/USD pair. The appearance of fresh selling on Thursday adds credence to the negative outlook, suggesting that any recovery attempts are more likely to be short-lived.
Technical levels
Source: Fx Street
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