AUD/USD drops to two-week lows, seems vulnerable to slide further
|- AUD/USD came under renewed selling pressure on Tuesday after RBA Governor Lowe’s comments.
- COVID-19 jitters, the selloff in iron ore prices exerted additional downward pressure on the aussie.
- Bulls seemed unimpressed by a subdued USD price action as the focus remains on the US CPI report.
The AUD/USD pair extended its intraday descent heading into the European session and dropped to near two-week lows, around the 0.7330 region in the last hour.
The pair struggled to capitalize on the previous day's modest gains, instead met with fresh supply on Tuesday after the Reserve Bank of Australia Governor Philip Lowe downplayed rate hike speculations. In a speech to the Anika Foundation, Lowe argued that it will take time to drive faster wages growth and reiterated that he doesn’t expect a lift-off before 2024.
Lowe also highlighted the downside risks associated with the recent spike in new cases infected with the Delta variant of the coronavirus. Apart from this, the selloff of iron ore prices, along with worries about the Delta variant was seen as another factor that undermined demand for the commodity-linked aussie. The intraday decline seemed rather unaffected by the prevalent risk-on environment.
Even a subdued US dollar price action did little lend any support to the AUD/USD pair. The USD bulls now seem to have moved on the sidelines and prefer to wait for a fresh catalyst from Tuesday's release of the latest US consumer inflation figures. The data could provide clues about the likely timing of the Fed's tapering plan and provide a fresh directional impetus.
The US Producer Price Index (PPI) for August recorded the largest gain since November 2010 and indicated that higher inflation could persist for some time. A stronger US CPI report will reaffirm the expectations and pave the way for an imminent announcement by the Fed to begin rolling back its massive pandemic-era stimulus.
Nevertheless, the fundamental backdrop seems tilted firmly in favour of bearish traders and supports prospects for a further near-term depreciating move for the AUD/USD pair. Hence, any attempted recovery move might now be seen as a selling opportunity and runs the risk of fizzling out rather quickly ahead of the FOMC meeting on September 20-21.
Technical levels to watch
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