AUD/USD plummets to fresh YTD lows, bears targeting 0.7400 mark

The AUD/USD pair added to its intraday losses and dropped to fresh seven-month lows, around the 0.7425 region during the early European session.

The pair extended this week's rejection slide from the 0.7600 neighbourhood and witnessed some follow-through selling for the third consecutive session on Thursday. Fresh COVID-19 jitters took its toll on the global risk sentiment and turned out to be a key factor that weighed heavily on the perceived riskier aussie.

Investors now seem worried about the economic fallout from the imposition of fresh restrictions to curb the spread of the highly contagious Delta variant of the coronavirus. New South Wales extended the lockdown in Australia's largest city – Sydney – for another week and the stay-at-home orders will now remain in place until July 16.

On the other hand, the US dollar witnessed a modest pullback from three-month tops amid a further decline in the US Treasury bond yields, albeit did little to lend any support to the AUD/USD pair. In fact, the yield on the benchmark 10-year US government bond dropped below the 1.30% threshold, or multi-month lows on Thursday.

This reflects anxiety about the economic outlook, which, in turn, held the USD bulls from placing any aggressive bets. That said, indications that the Fed is moving towards tightening its monetary policy as soon as this year might continue to act as a tailwind for the greenback and supports prospects for further losses for the AUD/USD pair.

The June FOMC meeting minutes released on Wednesday revealed that policymakers expect conditions to reduce the pace of asset purchases could be met earlier than previously anticipated. Fed officials also agreed that they must be ready to act if inflation or other risks materialize, suggesting that QE tapering discussions could begin in the coming months.

Even from a technical perspective, a sustained break below the previous YTD lows, around the 0.7445 area, might have already set the stage for an extension of the ongoing downfall. Hence, a subsequent decline towards the next relevant support, near the 0.7400 round-figure mark, looks like a distinct possibility.

Market participants now look forward to the US Initial Weekly Jobless Claims data, due for release later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and produce some short-term trading opportunities around the AUD/USD pair.

Technical levels to watch