- AUD/USD fell to a more than three-week low on Wednesday amid sustained USD buying.
- The setup supports prospects for an extension of the recent pullback from yearly highs.
- Sustained strength above 0.7500 is needed to nullify the bearish outlook.
The pair AUD/USD fell to a more than three-week low during the early American session on Wednesday and is now looking to extend the downward path further below 0.7400.
The US dollar remained high near its highest level since May 2020 and remained supported by expectations that the Fed will tighten monetary policy at a faster pace to curb runaway inflation. Bets were further buoyed by US producer price inflation, which beat estimates and accelerated to 11.2% yoy in March from 10.0% in the previous month.
Investors also remain concerned about the potential economic fallout from the war in Ukraine, which was evident in the mood of caution prevailing in equity markets. This was seen as another factor benefiting the dollar’s relative safe-haven status and drawing flows away from currencies perceived as riskier, including the Australian dollar.
From a technical perspective, the overnight attempted recovery move faltered just before the psychological 0.7500 level. The subsequent decline, for the fifth day of the previous six, favors bearish traders. This, in turn, supports the prospects for an extension of the recent sharp pullback from the 0.7660 region, or yearly highs hit earlier this month.
That being said, the pair has, thus far, shown resistance below the 50% Fibonacci retracement level of the strong rally from 0.7165-0.7662. This is closely followed by the 200-period SMA on the 4-hour chart, around the 0.7385 region, which should now act as a pivotal point for short-term traders and help determine the next leg of a directional move. .
A convincing break below should pave the way for a drop towards the 61.8% Fibonacci level test around the mid-0.7300s. This is closely followed by the lower end of a rising trend line extending from below 0.7000 levels, around the 0.7330-0.7325 region, which if broken decisively will be seen as a new trigger for bearish traders. .
Given that the technical indicators on the daily chart have just started to slide into negative territory, the AUD/USD pair could accelerate the decline towards 0.7350. Some follow-through selling would make the pair vulnerable to extending the downward path towards the 0.7240 region on the way to 0.7200 and 0.7175-0.7170 support.
Technical levels
Source: Fx Street
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