AUD/USD drops to its lowest level since January, below mid-0.6800s amid stronger USD

The AUD/USD pair extends this week's retracement slide from the 0.7030 area and continues losing ground for the third successive day on Friday. The downward trajectory drags spot prices to the lowest level since January 6 during the Asian session and is sponsored by broad-based US Dollar strength.

In fact, the USD Index, which tracks the Greenback against a basket of currencies, hits a fresh six-week high amid firming expectations for further policy tightening by the Fed. Investors seem convinced that the US central bank will stick to its hawkish stance in the wake of stubbornly high inflation. Moreover, the incoming upbeat US macro data points to an economy that remains resilient despite rising borrowing costs. This, along with the recent hawkish remarks by several FOMC members, suggests that the Fed will continue to hike interest rates.

The markets are now pricing in at least a 25 bps lift-off at each of the next two FOMC policy meetings in March and May. This, in turn, pushes the yield on the benchmark 10-year US Treasury note to its highest level since late December and is seen underpinning the buck. Meanwhile, worries about economic headwinds stemming from rapidly rising interest rates weigh on investors' sentiment. This is evident from a weaker tone around the equity markets, which further benefits the safe-haven USD and drives flows away from the risk-sensitive Aussie.

Apart from the aforementioned fundamental factors, the AUD/USD pair's downfall could also be attributed to some technical selling following the overnight break below the 50-day SMA. This comes on the back of the recent repeated failures to find acceptance above the 0.7000 psychological mark and might have already set the stage for further losses. Moreover, bearish oscillators on the daily chart add credence to the near-term negative outlook.

This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside. In the absence of any relevant market-moving economic data, any attempted bounce will now be seen as a selling opportunity and remain capped near the 50-day SMA support breakpoint.

Technical levels to watch