- AUD/USD falls to a multi-week low on Monday and is pressured by a combination of factors.
- Bets for aggressive Fed rate hikes, elevated US bond yields push the USD to a 20-year peak.
- The risk-off mood also benefits the safe-haven buck and weighs on the risk-sensitive aussie.
The AUD/USD pair witnesses some follow-through selling on Monday and drops to a six-week low during the early part of the European session. It is currently exchanging hands at around the mid-0.6800s. Spot prices have now retreated over 150 pips from levels just above the 0.7000 psychological mark touched on Friday amid a blowout US dollar rally.
The USD Index, which measures the greenback's performance against a basket of currencies, shot to a fresh 20-year high amid expectations for a more aggressive policy tightening by the Fed. The markets are pricing in a greater chance for a supersized 75 bps Fed rate hike move in September and the bets were reaffirmed by Fed Chair Jerome Powell's hawkish remarks on Friday.
During his speech at Jackson Hole Fed's Powell squashed hopes of a dovish pivot and signalled that interest rates would be kept higher for longer to bring down soaring inflation. A further rise in the US Treasury bond yields reinforces market expectations, which, along with the risk-off mood, offers additional support to the safe-haven buck and weighs on the risk-sensitive aussie.
The combination of aforementioned factors offset upbeat Australian Retail Sales data, which surpassed expectations by a big margin and rose 1.3% in July. Even the prospects for another 50 bps rate hike by the Reserve Bank of Australia at its next policy meeting on September 6 did little to impress bullish traders or provide any respite to the AUD/USD pair, favouring bearish traders.
From a technical perspective, the outlook favours bearish bets. A two-bar reversal pattern has formed on the weekly chart after last week's long down bar followed the previous week's long up bar, and this is likely to lead to a fresh down leg of selling. Further, the 50-week SMA is descending closer and closer to the 200-week SMA (which capped the last rally) and threatening to develop into a bearish 'death cross' over the next few weeks. If it succeeds it will be another black mark on the pair's scoresheet.
The prevalent strong bullish sentiment surrounding the USD adds credence to the near-term negative outlook esepcially in the absence of any major market-moving economic releases from the US. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside and any meaningful recovery attempt could now be seen as a selling opportunity.
Technical levels to watch
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