AUD/USD extends corrective slide from multi-month tops, further below 0.7500
|- AUD/USD witnessed a turnaround from multi-month tops touched earlier this Thursday.
- The risk-off impulse benefitted the safe-haven USD and prompted some long-unwinding.
- A strong follow-through selling is needed to confirm that the pair has topped out already.
The AUD/USD pair extended its corrective pullback from multi-month tops and weakened further below the key 0.7500 psychological mark during the early European session. The pair was last seen trading near daily lows, around the 0.7485-80 region, down 0.40% for the day.
The pair struggled to capitalize on its early positive move to the highest level since July and witnessed an intraday turnaround from the 0.7535 region. The risk-off impulse in the markets assisted the safe-haven US dollar to stage a goodish rebound from three-week lows and prompted some long-unwinding around the AUD/USD pair.
Worries about potential contagion from China Evergrande's debt crisis resurfaced after the heavily indebted developer said on Wednesday that a $2.6 billion stake in its property services unit failed. This, in turn, tempered investors' appetite for riskier assets and benefitted traditional safe-haven currencies, including the USD.
The greenback was further underpinned by elevated US Treasury bond yields, which seemed unaffected by the moderation of Fed rate hike expectations. This week's dismal US macro releases – Industrial Production and housing market data – pointed to weakening economic activity and tempered market expectations for an early policy tightening by the Fed.
This was further reinforced by the overnight comments from Fed Governor Randal Quarles, saying that that it would be premature to start raising interest rates in the face of high inflation that is likely to recede next year. Quarles, however, reaffirmed that it is time for the Fed to begin dialling down its massive pandemic-era bond-buying program.
From a technical perspective, Thursday's downfall could still be attributed to some profit-taking following the recent strong rally from late September swing lows. This makes it prudent to wait for a strong follow-through selling before confirming that the AUD/USD pair has topped out in the near term and positioning for any further depreciating move.
Market participants now look forward to the US economic docket – featuring the releases of the Philly Fed Manufacturing Index and the usual Weekly Initial Jobless Claims. This, along with a scheduled speech by Fed Governor Christopher Waller and the US bond yields, might influence the USD price dynamics and provide some impetus to the AUD/USD pair.
Technical levels to watch
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