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16 Dec 2022

AUD/USD struggles below 0.6700 mark amid risk-off, 100-day SMA holds the key for bulls

  • AUD/USD turns lower for the second straight day and is pressured by a combination of factors.
  • The Fed’s hawkish outlook, a pickup in the US bond yields act as a tailwind for the greenback.
  • The risk-off mood further benefits the safe-haven USD and weighs on the risk-sensitive Aussie.

The AUD/USD pair meets with a fresh supply following an intraday uptick to the 0.6735 area and turns lower for the second straight day on Friday. Spot prices remain depressed near the 0.6680-0.6675 zone, or over a one-week low, flirting with the 100-day SMA support heading into the North American session.

A more hawkish commentary by the Federal Reserve earlier this week pushes the US Treasury bond yields higher and acts as a tailwind for the US Dollar, which, in turn, weighs on the AUD/USD pair. In fact, the US central bank signalled that it will continue to raise rates to crush inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023.

Apart from this, the risk-off mood underpins the safe-haven buck and exerts additional pressure on the risk-sensitive Australian dollar. Worries that rapidly rising borrowing costs will lead to a deeper global downturn temper investors' appetite for perceived riskier assets. This is evident from a sea of red across the equity markets and driving haven flows towards the buck.

The intraday fall for the AUD/USD pair could also be attributed to some technical selling, especially after the overnight breakdown below a multi-week-old ascending trend line. Bearish traders now await sustained weakness below the 100-day SMA before positioning for a further appreciating move. This, in turn, will suggest that spot prices have topped out in the near term.

Next on tap is the US economic docket, featuring the release of the flash PMI prints for December. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Trades will further take cues from the broader risk sentiment to grab short-term opportunities on the last day of the week.

Technical levels to watch

 

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