- D/USD witnessed heavy selling for the second straight day and dived to a fresh multi-week low.
- Weaker outlook for iron ore demand, the risk-off mood weighed on the resources-linked aussie.
- Bets for aggressive Fed rate hikes boosted the USD and contributed to the intraday selling bias.
- Break through ascending trend-line/50-DMA confluence has set the stage for a further downfall.
The AUD/USD pair continued losing ground through the early European session and dropped to a fresh multi-week low, closer to the 0.7300 mark in the last hour.
Concerns that China’s aim to cut its steel output in 2022 could significantly dent the iron ore demand turned out to be a key factor that weighed on the resources-linked aussie. This, along with some follow-through US dollar buying, exerted heavy downward pressure on the AUD/USD pair for the second successive day on Friday.
The USD made a solid comeback from the weekly low touched on Thursday after Fed Chair Jerome Powell reinforced expectations for a faster policy tightening by the Fed. Powell said that a 50 bps interest rate hike will be on the table at the upcoming FOMC policy meeting on May 3-4 and also hinted at a series of rate increases this year.
The markets were quick to react and have started pricing in three straight 50 bps rate hikes, which, in turn, pushed the rate-sensitive 5-year US government bond above 3% for the first time since 2018. The selloff in the US fixed income markets continued on Friday, which, along with the risk-off impulse, underpinned the safe-haven buck.
The downward trajectory took along some short-term trading stops placed near the 50-day SMA, around the 0.7355 region, which coincided with an ascending trend-line extending from the YTD low. This, in turn, could be seen as a fresh trigger for bearish traders and supports prospects for an extension of a near three-week-old downtrend.
That said, it will be prudent to wait for sustained break below the 100-day SMA support, around the 0.7300 round-figure mark, before positioning for any further decline. Traders now look forward to the release of the flash US PMIs, which, along with the US bond yields, will influence the USD and provide a fresh impetus to the AUD/USD pair.
Technical levels to watch