AUD/USD Analysis: Defends multi-month ascending channel support, but only for the time being

• AUD/USD staged a modest recovery from six-week lows touched earlier this Thursday.
• Oversold conditions helped ease the bearish pressure, though any recovery seems elusive.
• Hawkish Fed expectations should act as a tailwind for the USD and cap gains for the pair.

The AUD/USD pair extended this week's rejection slide from 100-day SMA and dropped to a fresh monthly low during the Asian session on Thursday, albeit finding some support near the mid-0.7200s. The recent bearish trend witnessed since the beginning of this month was sponsored by the divergence in monetary policy stance between the Reserve Bank of Australia (RBA) and the (US) Federal Reserve. The RBA has made every effort to sound dovish in an attempt to push back expectations for a rate hike as early as next year.

Conversely, the Fed announced that it will begin to reduce its asset purchase program by $15 billion this month. Moreover, investors have been speculating for an early policy tightening move by the Fed amid worries about stubbornly high inflationary pressures. Markets have started pricing in the possibility for an eventual rate hike move by July 2022 and the Fed funds futures indicate a high likelihood of another raise by November. This, in turn, has been fueling the recent US dollar rally to a 16-month peak.

Slightly overstretched conditions on intraday charts helped limit any further losses amid a modest USD profit-taking slide overnight. Retreating US Treasury bond yields turned out to be a key factor that prompted USD long-unwinding and extended some support to the major, though any meaningful recovery still seems elusive. Hawkish Fed expectations, along with the cautious mood around the equity markets might continue to act as a tailwind for the safe-haven greenback and cap gains for the perceived riskier aussie.

Market participants now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index and the usual Weekly Initial Jobless Claims. Apart from this, US bond yields and a scheduled speech by New York Fed President John Williams will influence USD price dynamics later during the early North American session. Traders will further take cues from broader market risk sentiment to grab some short-term opportunities around the major.

Technical outlook

From a technical perspective, the downfall stalled near support marked by the lower end of a near three-month-old ascending channel. This should now act as a key pivotal point and help determine the next leg of a directional move for the major. A convincing break below would be seen as a fresh trigger for bearish traders and turn the pair vulnerable to test the 0.7200 mark. The downward trajectory could further extend towards 0.7165 intermediate support before the pair eventually drops to challenge YTD lows, around the 0.7100 round figure touched in August.

On the flip side, the 0.7300 mark now seems to be acting as immediate resistance. Any subsequent recovery might still be seen as a selling opportunity and remain capped near the 100-day SMA, currently near the 0.7355-60 region. A sustained strength beyond could trigger a short-covering move and allow bulls to reclaim the 0.7400 mark. The momentum could further get extended towards the next relevant hurdle near the 0.7460 region, which if cleared decisively will negate the bearish bias.