AUD/USD Outlook: Break below 200-DMA has set the stage for additional losses

The AUD/USD pair remained under intense selling pressure for the fourth consecutive session on Friday and dive to fresh YTD lows amid sustained US dollar buying interest. In fact, the USD Index shot to the highest level in nearly two-and-half-month tops and remained well supported by the Fed's sudden hawkish shift. The Fed last week stunned investors and brought forward its timetable for the first post-pandemic interest rate hikes. The so-called dot plot pointed to two rate hikes by the end of 2023 as against March's projection for no increase until 2024.

Apart from this, a selloff in the global equity market further benefitted the greenback's safe-haven status and drove flows away from the perceived riskier aussie. The already stronger buck got an additional boost after St. Louis Federal Reserve President James Bullard said that the Fed Chairman Jerome Powell officially opened taper discussion at the last meeting. Speaking to CNBC, Bullard added that the shift toward a faster tightening of monetary policy was a natural response to stronger economic growth and a quicker than expected rise in inflationary pressures.

The combination of factors, to a larger, extent, helped offset a sharp decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US bond tumbled to the lowest since February, while those on 30-year bonds fell below 1.20% for the first time in more than four months. Nevertheless, the USD Index posted its best weekly gains in about 14 months. This, along with technical selling below the very important 200-day SMA and the key 0.7500 psychological mark, aggravated the bearish pressure surrounding the major.

However, oversold conditions on short-term charts assisted the pair to stage a modest bounce during the Asian session on Monday. The attempted recovery, however, lacked any strong follow-through buying, instead ran out of steam near the 0.7520 region in reaction to disappointing Australian Retail Sales data. According to the preliminary estimate, the total value of sales at the retail level rose 0.1% MoM in May as against market expectations for a growth of 0.7%. The data fueled worries about the fallout from COVID lockdowns in Victoria, Australia's second-biggest state economy.

This, along with the prevalent risk-off mood, should act as a headwind for the Australian dollar and keep a lid on any meaningful recovery for the major, at least for now. There isn't any major market-moving economic data due for release from the US. That said, the strong bullish sentiment surrounding the USD suggests that the path of least resistance for the major remains to the downside.

Technical levels to watch

From a technical perspective, Friday's steep decline confirmed a near-term bearish breakdown and has already set the stage for further weakness. The pair's inability to capitalize on the attempted recovery adds credence to the bearish outlook. Hence, any positive move might still be seen as a selling opportunity and remain capped near mid-0.7500s (2100-DMA). This is followed by strong resistance near the 0.7575-80 horizontal zone, which if cleared decisively might prompt some near-term short-covering move.

On the flip side, YTD lows, around the 0.7475 region might lend some immediate support to the pair. Some follow-through selling will reaffirm the negative bias and drag the pair further towards the 0.7400 round-figure mark. The next relevant support is pegged near the 0.7340-35 region, below which the pair seems all set to test sub-0.7300 levels.