AUD/USD remains bearish near multi-week lows

• AUD/USD remains depressed near a multi-week low and is under pressure from a combination of factors.
• Aggressive expectations from the Fed and high yields on US bonds push the dollar back close to two-decade highs.
• The risk environment reinforces the safe-haven dollar and weighs on the risk-sensitive Aussie.

The pair AUD/USD it struggles to take advantage of its intraday rebound from levels below 0.6800, ie the lowest level since June 18, and remains depressed during the early American session. The pair is currently hovering around the 0.6820 region and looks vulnerable to prolonging the recent downtrend seen in the last three weeks or so.

The US dollar regains positive traction on Thursday and is back close to 20-year highs hit earlier this week amid Fed expectations. Markets seem convinced that the US central bank will maintain its aggressive policy of tightening to curb inflation and have been eyeing a 75 basis point rate hike in September. This continues to favor a further rise in US Treasury yields and continues to support the dollar, which in turn is seen as putting downward pressure on the AUD/USD pair.

Indeed, the 2-year US government bond yield, which is highly sensitive to expectations of a Fed rate hike, hits a 15-year high. Apart from this, the better-than-expected weekly initial jobless claims data in the US and the prevailing risk-off environment offer additional support for the safe-haven dollar. Market sentiment remains fragile amid growing concerns about a further global economic downturn. Fears were fueled by Thursday’s disappointing release of Chinese Caixin/Markit Manufacturing PMI, which fell to 49.5 in August.

In addition, economic difficulties stemming from further COVID-19 lockdowns dampen investors’ appetite for riskier assets. This is evident in a generally weaker tone around equity markets, further contributing to the offered tone around the risk sensitive Aussie. The fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside and any attempt at recovery could be seen as a selling opportunity.

However, attention remains focused on monthly US employment data due out on Friday. The popularly known NFPs will provide a new insight into the health of the economy in the face of rising rates and stubborn inflation. This, in turn, will play a key role in influencing short-term USD price dynamics and help determine the next leg of a directional move for the AUD/USD pair.

Technical levels