AUD/USD slides further below mid-0.6400s amid notable USD demand, risk-off impulse

The AUD/USD pair struggles to capitalize on the overnight solid bounce of over 150 pips from its lowest level since April 2020 and meets with a fresh supply on Thursday. The pair extends its intraday descent through the early European session and slides back below mid-0.6400s, hitting a fresh daily low in the last hour.

The Australian dollar started losing ground after the first monthly consumer inflation report showed that price pressures may be starting to ease. In fact, the Australian Bureau of Statistics reported that the headline CPI eased to a 6.8% YoY rate in August from 7% in the previous month. Excluding the volatile food and energy prices, the gauge edged up to 6.2% during the reported month. This, along with resurgent US dollar demand, prompts fresh selling around the AUD/USD pair.

Following the previous day's dramatic turnaround from a new two-decade high, the USD regains positive traction amid a goodish pickup in the US Treasury bond yields. Investors seem convinced that the Fed will hike interest rates at a faster pace to curb inflation. The bets were reaffirmed by the recent hawkish remarks by a slew of FOMC officials, which, in turn, acts as a tailwind for the US bond yields. Apart from this, the risk-off impulse further underpins the safe-haven buck.

The market sentiment remains fragile amid worries that a more aggressive policy tightening by major central banks will lead to a deeper economic downturn. Adding to this, the risk of a further escalation in the Russia-Ukraine conflict has been fueling recession fears and taking its toll on the global risk sentiment. This is evident from a fresh leg down in the equity markets, which forces investors to take refuge in traditional safe-haven assets and weighs on the risk-sensitive aussie.

The fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside and attempted recoveries might still be seen as a selling opportunity. Market participants now look forward to the US economic docket, featuring the final Q2 GDP print and the usual Weekly Initial Jobless Claims. Traders will also take cues from speeches by FOMC members, which, along with the US bond yields, should drive the USD and provide some impetus to the AUD/USD pair.

Technical levels to watch