AUD/USD Struggles Near Two-Year Low Amid Recession Fears and Sustained USD Buying

• AUD/USD remains on the defensive near its lowest level since June 2020.
• Incessant USD buying and risk-off sentiment weighs on the risk-sensitive Aussie.
• The pullback in US bond yields could cap the dollar and support the pair.

The pair AUD/USD moves in a range at the start of the European session on Tuesday and consolidates its recent decline to the lowest level since June 2020.

The US dollar extended the previous day’s strong gains and rose to a new two-decade high amid the aggressive Fed expectations. This, along with the feeling of risk aversionoffered additional support to the safe-haven US dollar, and acted as a headwind for the perceived riskier AUD.

Investors now seem convinced that the Fed will continue its aggressive tightening policy to curb rising inflation. Expectations were bolstered by FOMC meeting minutes released last week, which indicate that another rate hike of 50 or 75 basis points is likely at the next FOMC meeting in July.

Those responsible for monetary policy also stressed the need to fight inflation, even if it means an economic slowdown. This, coupled with the ongoing war between Russia and Ukraine and a new outbreak of COVID-19 in China, has fueled fears of a recession and tempered investors’ appetite for riskier assets.

Also, the worsening of the global economic outlook caused the recent decline in commodity prices. This is seen as another factor weighing on the Australian dollar and supporting the prospect of a continuation of the AUD/USD slide seen over the past month.

That said, the global flight to safe haven continued to put downward pressure on US Treasury yields and could deter USD bulls from opening new positions. This, in turn, could help limit any further losses for the AUD/USD pair ahead of this week’s important economic releases.

On Wednesday the latest US CPI consumer inflation figures., to be followed by monthly Australian employment data on Thursday. Additionally, US Retail Sales and Michigan Preliminary Consumer Sentiment will be released on Friday.

Meanwhile, broader market risk sentiment coupled with US bond yields could influence dollar price dynamics. This, in turn, should give the AUD/USD pair some lift and allow investors to take advantage of some short-term opportunities amid the absence of any relevant economic data from the United States.

AUD/USD technical levels