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November 17, 2022

AUDUSD dives to below 0.6650

- AUDUSD attracts fresh sellers on Thursday amid a strong pickup in the US Dollar demand.

- Rebounding US Treasury bond yields, the risk-off impulse boosts the safe-haven Greenback.

- The fundamental backdrop supports prospects for a further depreciating move for AUDUSD.

The AUD/USD pair comes under heavy selling pressure on Thursday and extends the overnight retracement slide from the vicinity of the 0.6800 mark, or over a two-month high. The intraday downfall remains uninterrupted through the early North American session and drags spot prices to a fresh weekly low, around the 0.6635 region in the last hour.

Resurgent US Dollar demand prompts aggressive selling around AUDUSD

The US Dollar makes a solid comeback on Thursday and moves away from its lowest level since August 12 touched earlier this week, which, in turn, is seen exerting downward pressure on the AUDUSD pair. The upbeat release of Retail Sales figures from the United States on Wednesday cast doubts on the peak inflation narrative. The positive consumption data forces market participants to scale back their bets for a less aggressive policy tightening by the Federal Reserve (Fed). This is evident from a goodish pickup in the US Treasury bond yields and helps revive the USD demand.

The USD bulls further took cues from St. Louis Fed President James Bullard's hawkish remarks, saying that the policy is not yet in a range estimated to be sufficiently restrictive to reduce inflation. The USD maintains its bid tone following the release of better-than-expected housing market data and Initial Jobless Claims, which offset the Philly Fed Manufacturing Index. Traders now look forward to speechs by other regional Fed Presidents - Raphael Bostic, Loretta Mester and Neel Kashkari - for a fresh impetus.

Risk-off impulse contributes to the sharp intraday downfall

Apart from this, a fresh wave of the global risk-aversion trade - as depicted by a steep intraday fall in the equity markets - provides an additional boost to the safe-haven Greenback. The market sentiment remains fragile amid concerns over economic headwinds stemming from a new COVID-19 outbreak in China - the world's second-largest economy. Adding to this, the risk of a further escalation of geopolitical tensions - amid the protracted Russia-Ukraine war - temper investors' appetite for riskier assets and contributed to driving flows away from the risk-sensitive Australian Dollar.

AUDUSD seems vulnerable to extending the corrective decline

The resources-linked Aussie is further pressured by the ongoing slide in Copper prices, weighed down by growing worries about a deeper global economic downturn. The combination of the aforementioned factors overshadows mostly upbeat Australian employment details released earlier this Thursday. Market players seem convinced that the data was not strong enough for the Reserve Bank of Australia to shift from its dovish course. This, in turn, suggests that the path of least resistance for the AUDUSD pair is to the downside and any attempted recovery might still be seen as an opportunity for bearish traders.

AUDUSD technical outlook

From a technical perspective, repeated failures near the 0.6800 mark over the past two trading sessions seem to have prompted traders to unwind their bullish positions around the AUDUSD pair. A subsequent fall below the previous weekly low, around the 0.6665-0.6660 area, might have already set the stage for deeper losses. Hence, some follow-through weakness towards the 0.6600 mark, en route to the 0.6560-0.6550 strong horizontal resistance breakpoint, now looks like a distinct possibility.

On the flip side, any meaningful recovery attempted now seems to confront stiff resistance and runs the risk of fizzling out near the 0.6700 round figure. That said, a sustained strength beyond might trigger a short-covering rally and lift spot prices towards the 0.6735-0.6740 region. Bulls might then aim back towards conquering the 0.6800 mark, which should act as a pivotal point and help determine the next leg of a directional move for the AUDUSD pair.

AUDUSD key levels to watch

AUD/USD

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