AUD/USD drops to fresh session lows, around mid-0.7700s
- A combination of factors prompted some fresh selling around AUD/USD on Wednesday.
- The risk-off mood was seen as a key factor that weighed on the perceived riskier aussie.
- A strong pickup in the US bond yields benefitted the USD and added to the selling bias.
- The market focus remains glued to Wednesday’s release of the FOMC meeting minutes.
The AUD/USD pair added to its intraday losses and dropped to two-day lows, around mid-0.7700s during the first half of the European session.
Having struggled to find acceptance above the 0.7800 mark in the previous session, the pair came under some heavy selling pressure on Wednesday and was pressured by a combination of factors. A pullback in commodity prices acted as a drag on the commodity-linked aussie. This, along with a sharp fall in the global equity markets, further drove flows away from the perceived riskier Australian dollar.
Meanwhile, the risk-off mood drove some haven flows towards the US dollar, which got an additional boost from a goodish pickup in the US Treasury bond yields. This was seen as another factor that exerted some downward pressure on the AUD/USD pair. That said, dovish Fed expectations might cap any meaningful upside for the greenback and help limit deeper losses, at least for the time being.
Given the Fed's stubbornly dovish view that any spike in inflation will be transitory, investors have been scaling back their expectations for an earlier than anticipated lift-off. Hence, the key focus will remain on the latest FOMC monetary policy meeting minutes, which will play a key role in driving the USD in the near term and produce some meaningful trading opportunities around the AUD/USD pair.
Apart from this, investors will also focus on Thursday's release of the monthly employment report from Australia. This might influence market expectations on whether the RBA would start tapering some of its emergency stimulus measures, which, in turn, should help determine the next leg of a directional move for the AUD/USD pair.
Technical levels to watch