- AUD/USD drops to its lowest level since June 2020 amid sustained USD buying.
- Aggressive Fed rate hike bets, the risk-off mood continues to underpin the buck.
- Bearish traders take a breather as the focus remains glued to the FOMC decision.
The AUD/USD pair adds to the previous day's losses and continues losing ground for the second straight day on Wednesday. Spot prices drop to the lowest level since June 2020, though find some support just ahead of the mid-0.6600s.
The strong US dollar buying interest remains unabated through the early European session amid hawkish Fed expectations and turns out to be a key factor exerting downward pressure on the AUD/USD pair. In fact, the US central bank is expected to deliver another supersized 75 bps rate hike at the end of a two-day meeting on Wednesday.
The markets have also been pricing in a small probability of a full 100 bps increase, which, along with the prevalent risk-off mood, continues to boost the safe-haven buck. Concerns about a deeper global economic downturn temper investors' appetite for riskier assets and further contributes to driving flows away from the risk-sensitive aussie.
The anti-risk flow, meanwhile, triggers a modest pullback in the US Treasury bond yields and is holding back the USD bulls from placing aggressive bets. Traders also seem reluctant to place aggressive bets ahead of the key central bank event risk, which, in turn, offers some support to the AUD/USD pair and limits the downside, for the time being.
The fundamental backdrop, however, remains tilted firmly in favour of bearish traders and suggests that the path of least resistance for the AUD/USD pair is to the downside. Hence, any meaningful recovery attempt might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly amid the underlying USD bullish sentiment.
Technical levels to watch
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