- AUD/USD came under renewed selling pressure on Wednesday amid modest dollar strength.
- A nice rebound in US bond yields and a softer risk tone benefited the safe-haven dollar.
- A break below the 0.7150 area is needed to confirm a bearish outlook ahead of Friday’s US CPI.
The pair AUD/USD found fresh supply on Wednesday and erased the previous day’s modest gains by approaching the 100-day SMA resistance. The pair remained on the defensive in the North American session and was last seen around 0.7200, down nearly 0.35% on the day.
A combination of factors provided a modest intraday boost to the US dollar which, in turn, put some downward pressure on the AUD/USD pair. Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war will drive consumer prices higher and force the Federal Reserve to tighten monetary policy at a faster pace. This, in turn, led to a further rise in US Treasury yields, which, together with a softer risk tone, offered some support to the safe-haven dollar.
Market sentiment remains fragile on doubts that central banks can raise interest rates to curb inflation without affecting economic growth. This largely overshadowed a tougher decision from the Reserve Bank of Australia (RBA) on Tuesday. It is worth recalling that the RBA has raised interest rates to the highest in 22 years and signaled that a further tightening is in the works as it struggles to rein in rising inflation. Markets were quick to assess the real risk of another 50 basis point hike in July.
That said, the inability of the AUD/USD pair to gain any significant traction and repeated failures near the 100/200 day SMA confluence suggest that the recent bounce from the year low has run its course. However, traders were reluctant to place aggressive bearish bets, preferring to wait for US consumer inflation numbers, due for release on Friday. Therefore, it will be prudent to wait for sustained weakness below horizontal support at 0.7150 before positioning for a further downside move.
Technical levels
Source: Fx Street
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