AUD/USD Forecast: Seems vulnerable below 0.7700 mark, focus remains on FOMC

The AUD/USD pair came under some renewed selling pressure on Tuesday and dropped to one-and-half-week lows amid resurgent US dollar demand. Investors might have started pricing in the prospects for an earlier stimulus withdrawal amid worries about rising inflationary pressure. The concerns were further fueled by the hotter-than-expected US Producer Price Index, which rose 0.8% MoM in May and accelerated 6.6% on a yearly basis. This, along with a modest uptick in the US Treasury bond yields, pushed the key USD Index to one-month tops, which, in turn, was seen as a key factor that exerted downward pressure on the major.

Other economic data released from the US showed monthly Retail Sales dropped 1.3% MoM in May. Adding to this, both Core Retail Sales (excluding autos) and the closely watched Retail Sales Control Group fell 0.7% as against consensus for a reading of +0.2% and -0.6%, respectively. The weaker-than-anticipated prints were offset by an upward revision of sales in April and hence, did little to dent the intraday bullish sentiment surrounding the greenback. That said, investors' reluctance to place any aggressive bets ahead of the highly-anticipated FOMC decision helped limit any deeper losses for the pair, at least for now.

The pair finally settled around 15 pips off daily swing lows and edged higher during the Asian session on Wednesday. Market participants now look forward to a slew of Chinese macro data, which could have an impact on the China-proxy Australian dollar. The key focus, however, will remain on the latest monetary policy update by the Fed. Investors will be closely watching for clues about a possible change in the policy outlook and if members have started the discussion to taper the current $120 billion in monthly bond purchases. This will play a key role in driving the USD in the near term and provide a fresh directional impetus to the major.

Short-term technical outlook

From a technical perspective, acceptance below the 0.7700 mark supports prospects for an extension of the recent sharp pullback from over two-week tops touched on Friday. The next relevant support is pegged near monthly swing lows, around the 0.7645 region, below which the pair seems all set the accelerate the fall towards the 0.7600 mark. The downward trajectory could further get extended back towards challenging YTD lows, around the 0.7530 area touched on April 1.

On the flip side, any meaningful positive move now seems to confront resistance near the 0.7725 region. Any subsequent positive move might be seen as a selling opportunity and remain capped near the 0.7755-60 supply zone. A sustained move beyond will negate any near-term bearish bias and allow bulls to aim back to reclaim the 0.7800 mark. Some follow-through buying has the potential to push the pair further beyond an intermediate hurdle near the 0.7855-60 region, towards the 0.7900 round figure.