AUD/USD: Consolidates heaviest drop in a month above 0.7600 even as risk-off prevails

• AUD/USD bounces off monthly low, flashed recently, amid short-covering move.
• Fedspeak, virus-led lockdown and Western tussle with China weigh on sentiment, Flooding in NSW exerts additional downside pressure.
• Preliminary readings of Commonwealth Bank PMIs can offer immediate direction but risk catalysts keep the driver’s seat.

AUD/USD picks up bids to 0.7630, off recently flashed monthly low, during the early Wednesday’s Asian session trading. The pair dropped the most since February 26 the previous day as multiple catalysts, ranging from Fed to coronavirus (COVID-19) and geopolitics, hurt market sentiment. Given the lack of decisive data, except for second-tier activity numbers, bears can keep the reins and look challenges to risks for fresh impulse.

Beaten from all the corners…

Be it the Fed policymakers’ mixed comments or the flooding in New South Wales (NSW), not to forget virus-led lockdowns in Europe and Western tussle with Beijing, AUD/USD had a beating from all the corners.

Talking about the Fedspeak, Chairman Jerome Powell kept his cautious optimism while defending the stimulus whereas Dallas Federal Reserve President Robert Kaplan tuned too hawkish by signaling rate hikes in 2022. Further, Federal Reserve Governor Lael Brainard and St. Louis Fed President James Bullard offered mixed signals relating to the economy. Elsewhere, Treasury Secretary Janet Yellen shrugged off tax-hike fears but couldn’t impress the markets.

Elsewhere, Australia's worst floods in nearly half a century, per Reuters, in the NSW as well as fights between the Western allies and China over human rights violations in Xinjiang also weigh on the mood. Furthermore, extended virus-led lockdown in Germany and Netherlands is an extra burden on the market sentiment.

Against this backdrop, Wall Street benchmarks turned south whereas the US 10-year Treasury yield dropped six basis points (bps) to retest a one-week low around 1.62% by the end of Tuesday’s North American session.

Moving on, preliminary readings of March month Aussie PMIs from the Commonwealth Bank of Australia (CBA) can offer immediate direction but major attention will be given to the risk catalysts mentioned above for fresh direction. Given the strength of the risk-off mood, coupled with the break of key short-term support, AUD/USD is likely to remain depressed for a while.

Technical analysis

While a clear break of a three-month-old ascending trend line portrayed the heaviest AUD/USD drop in a month, 100-day SMA currently challenges the bears around 0.7600. Hence, a corrective pullback towards the previous support line near 0.7670 can’t be ruled out unless the quote holds 0.7600, a break of which will eye the yearly bottom around 0.7560.