AUD/USD struggles below 0.7400 on sour sentiment

• AUD/USD bears take a breather after two-day fall.
• RBA surprised markets with tapering plans but the rate statement triggered weakness.
• Virus woes, challenges for US stimulus exert additional downside pressure.
• Fedspeak becomes the key as DXY tracks firmer Treasury yields on concerns that economic fears push back Fed tapering plans.

AUD/USD treads water around 0.7385, following the heaviest daily fall in three weeks, amid a quiet Asian session on Wednesday. The RBA showdown joined the risk-off mood to portray the Aussie pair’s downside move the previous day. However, a lack of major catalysts and pre-ECB caution seems to challenge the traders of late.

On Tuesday, the RBA surprised markets by announcing details of its bond purchase tapering but kept the benchmark interest rate unchanged at 0.10%, also maintained the 0.10% target for the April 2024 Australian Government bond, while matching expectations. Even so, the Rate Statement conveyed economic fears due to the virus-led local lockdowns and pushed the AUD/USD towards the south.

As per the latest updates, RBA will purchase government securities at the rate of $4 billion a week and extending the purchase period from November 2021 to February 2022. In doing so, the Aussie central bank said, the decision to extend the bond purchases at $4 billion a week until at least February reflects the delay in recovery and uncertainty of the delta outbreak.

Elsewhere, the doubling of the virus-led hospitalizations in the US in a year and a 67% hike in the covid-led deaths in the last two weeks, versus the previous period, portrays the COVID-19 fears in America. The same push President Joe Biden towards a six-pronged strategy, the details of which will be out on Thursday and Friday. ''It is an illustration of how the delta variant has hampered progress in curbing the pandemic even as vaccines became widely available,'' The Washington Post wrote. 

On the other hand, CNN came out with the news suggesting further hardships for the Democratic party-backed stimulus as it reaches the House. The news said, “House Republicans could face increased pressure to vote against a bipartisan infrastructure package when they return to Washington later this month.”

Amid these plays, the US 10-year Treasury yields benefited from the risk aversion wave and crossed the last month’s high, underpinning the US Dollar Index (DXY) to print the biggest daily jump since August 19. Also portraying the risk-off mood were the Wall Street benchmarks, followed by a mildly offered S&P 500 Futures.

While tracking the aforementioned catalysts, the AUD/USD prices ignored upbeat trade numbers from China as Australia’s AiG Performance of Services Index for August dropped to the lowest since October.

Looking forward, a light calendar and the pre-ECB caution may weigh on the AUD/USD prices but comments from Fed New York President John C. Williams should be watched carefully for fresh impulse.

Technical analysis

In addition to a sustained pullback from the 100-day and 200-day EMA convergence, a downside break of a three-week-old support line, now resistance, keeps AUD/USD sellers hopeful.