AUD/USD drops to over one-week low, below mid-0.6600s amid broad-based USD strength

The AUD/USD pair attracts fresh sellers on Friday and extends the previous day's rejection slide from over a two-week peak, around the 0.6755-0.6760 region, which coincides with a technically significant 200-day Simple Moving Average (SMA). The intraday downfall drags spot prices to over a one-week low, around the 0.6635 area during the first half of the European session and is sponsored by resurgent US Dollar (USD) demand.

In fact, the USD Index, which tracks the Greenback against a basket of currencies, builds on the previous day's solid bounce from a seven-week low and gains strong follow-through traction amid a sharp fall in the equity markets. The disappointing release of manufacturing PMIs from the Eurozone and the UK revived worries about looming recession risks. This, in turn, takes its toll on the global risk sentiment, which forces investors to take refuge in traditional safe-haven assets, including the Greenback.

This comes on the back of data released earlier this Friday, which indicated renewed contraction in Australia's private sector business activity in February and drives flows away from the perceived riskier Aussie. In fact, the gauge for the manufacturing sector dropped to 48.7 in March from the 50.7 previous, while Services PMI came in at 48.2 during the reported month as compared to 50.7 in February. Furthermore, the Composite PMI also dropped to 48.1 in March from February's 50.6 final print.

This, along with the Reserve Bank of Australia's (RBA) dovish signal, indicating that a pause in the rate-hiking cycle may be on the cards next month, exerts additional downward pressure on the AUD/USD pair. It, however, remains to be seen if the USD bulls can maintain their dominant position amid the Fed's less hawkish outlook on Wednesday. The US central bank raised interest rates by 25 bps, as expected, though sounded cautious about the outlook in the wake of the recent turmoil in the banking sector.

This leads to a further decline in the US Treasury bond yields and could act as a headwind for the Greenback, which should help limit losses for the AUD/USD pair, at least for the time being. Market participants now look forward to the US economic docket, featuring the release of Durable Goods Orders and flash PMI prints for March. This, along with the broader risk sentiment, will influence the USD price dynamics and allow traders to grab short-term opportunities around the pair heading into the weekend.

Technical levels to watch