On Tuesday, the AUD/USD pair attracted fresh selling near the mid-0.6700s and dropped to its lowest level since December 23 during the first half of the European session. The pair now seems to have found acceptance below the 0.6700 round-figure mark and seems vulnerable to prolonging its downward trajectory witnessed over the past month or so.
The Australian Dollar weakens across the board in reaction to the Reserve Bank of Australia’s (RBA) signal that a pause in its 10-month rate-hiking cycle is on the way. The RBA earlier this Tuesday raised its overnight cash rate as expected by 25 bps to 3.6%, or the highest since June 2012.
In the accompanying policy statement, the RBA changed a reference from “further increases in rates” to “further tightening of monetary policy” would be needed and boosted expectations for an eventual pause in the policy tightening.
Adding to this, RBA Governor Philip Lowe warned that the path to achieving a soft landing for the Australian economy remains narrow and fueled worries that the economy could suffer a recession over the next 24 months.
This, along with the disappointing release of Australia’s trade balance data, is seen weighing on the domestic currency and dragging the AUD/USD pair lower for the second successive day. Bulls, meanwhile, fail to gain any respite and seem rather unimpressed by a subdued US Dollar demand.
A generally positive tone around the equity markets seems to undermine the safe-haven Greenback. However, it does little to benefit the risk-sensitive Aussie or support the AUD/USD pair. The latest leg down, meanwhile, confirms a fresh breakdown through over a one-week-old trading range support. Apart from this, growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance for longer favors the USD bulls and suggests that the path of least resistance for spot prices is to the downside.
Traders, however, might refrain from placing aggressive bets and prefer to wait for Fed Chair Jerome Powell’s semi-annual congressional testimony. Investors will look for fresh clues about the Fed’s future rate-hike path, which will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the AUD/USD pair.
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