AUD/USD struggles near its yearly low, just above 0.6550 ahead of FOMC Minutes

• AUD/USD falls for the second day in a row and hits a new yearly low on Wednesday.
• Looming recession risks weigh on investor sentiment and undermine the risk sensitivity of the Australian dollar.
• Falling US bond yields limit dollar gains and provide support ahead of FOMC Minutes.

The AUD/USD pair remains under strong selling pressure for the second consecutive day and falls to the 0.6560 zone, its lowest level since November 2022, during the early stages of the North American session.

Concerns about slowing global growth, especially in China, coupled with the lack of progress in talks on raising the US debt ceiling, continue to weigh on investor sentiment and turn out to be a key factor weighing on the Australian dollar (AUD). Indeed, data from China last week indicated that the world’s second largest economy underperformed in April. In addition, representatives of President Joe Biden and congressional Republicans ended another round of debt ceiling talks without reaching an agreement to raise the government’s borrowing limit, which stands at $31.4 trillion. This, coupled with speculation that the Reserve Bank of Australia (RBA) may refrain from raising rates in June, puts additional downward pressure on the perceived riskier Aussie.

Elsewhere, the US dollar (USD) consolidates its recent gains at two-month lows and remains well supported by strong expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. In fact, markets have begun to price in the possibility of another 25 basis point hike at the upcoming June policy meeting, and bets have been boosted by recent hawkish remarks from a number of influential government officials. Fed. That being said, the ongoing pullback in US Treasury yields is preventing USD bulls from making aggressive bets and is helping to limit the AUD/USD pair’s decline. Investors also appear reticent, preferring to wait on the sidelines before the FOMC meeting minutes are released later in the US session.

The minutes will be scrutinized for clues as to the Fed’s future rate-hike path, which, in turn, will play a key role in influencing near-term USD pricing dynamics and provide a new directional boost to the AUD/USD pair. However, the aforementioned fundamental background suggests that the path of least resistance for major pairs is to the downside and any recovery attempt could still be sold. The pair looks vulnerable to weakening further towards a test of the next relevant support near the key psychological level of 0.6500.

technical levels