- A strong pickup in the USD demand prompted aggressive selling around AUD/USD on Friday.
- The already stronger greenback got an additional boost from upbeat core PCE inflation data.
- The risk-on rally in the equity markets might help limit losses for the perceived riskier aussie.
The AUD/USD pair continued losing ground through the early North American session and dropped closer to monthly lows, around the 0.7680 region in the last.
The pair witnessed aggressive selling on the last trading day of the week and extended this week's rejection slide from the vicinity of the 0.7800 round-figure mark. The sharp intraday downfall was exclusively sponsored by a broad-based US dollar strength, which got an additional boost following the release of the key inflation data.
According to data released by the US Bureau of Economic Analysis, the core PCE Price Index – the Fed's preferred inflation gauge – rose 3.1% YoY in April. The reading was considerably above the central bank's 2% target and validated the higher inflation narrative. This, in turn, fueled speculations for an earlier than anticipated Fed lift-off.
Hawkish Fed expectations were reinforced, along with the anticipated supply of government debt pushed the US bond yields higher. This was seen as another factor that extended some additional support to the greenback. The New York Times reported on Thursday that US President Joe Biden will announce a $6 trillion budget for the fiscal year 2022.
Meanwhile, the Biden administration’s multi-trillion spending plan provided a strong boost to the already upbeat market mood. This was evident from a strong rally in the global equity markets. This might turn out to be the only factor that might extend some support to the perceived riskier aussie and help limit further losses for the AUD/USD pair.
From a technical perspective, acceptance below the 0.7700 round-figure mark might be seen as a fresh trigger for bearish traders. Some follow-through selling below monthly swing lows will reaffirm a negative outlook and turn the AUD/USD pair vulnerable to prolong its downward trajectory in the near term.
Technical levels to watch
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