AUD/USD Bears Eye Further Downside Move Below Key Support Level, US Core Durable Goods Orders Report Awaited
- AUD/USD attracts fresh selling on Monday to extend the break beyond the key support level
- Hawkish remarks by Atlanta's FED president underpin the safe-haven greenback and exert downward pressure on the Pair
- The Russia-Ukraine war continues to uplift the U.S. Dollar amid the latest threats by the Russian President
- A snap lockdown in China's steel hub Tangshan and the Asian Development Bank's (ADB) cut in the growth forecasts undermine the risk-sensitive Aussie dollar
- The U.S. Census Bureau to release the U.S. Core Durable Goods order report tomorrow
AUD/USD pair seesawed between tepid minor gains and minor losses during the early part of the Asian session. The cross struggled to capitalize on extending Friday's modest pullback from the vicinity of the 0.65115 level and ran out of steam after attracting fresh selling in the last hour or so on the first day of the week. When speaking, the Pair is down over 25 pips from the daily high and looks set to maintain its bid tone heading into the European session.
Rising US treasury bond yields and a softer risk tone supported the greenback. They helped exert downward pressure on the Pair as markets continue to weigh the implications of the Federal Reserve's latest policy decisions. It signalled its willingness to accept a recession ahead if it means an end to surging inflation. As such, the policy-sensitive 2-year Treasury note continued its steady accent and rose to a fresh 15-year record of 4.269% on Monday.
The Fed on Wednesday delivered another largeĀ 75 basis point interest rate hikeĀ and indicated it intends to stay aggressive, bumping up interest rates to 4.6% in 2023 and 4.4% by the end of 2022. Fed Chairman Jerome Powell also signalled that the way to tame inflation isn't painless ahead. While the Fed matched market forecasts, the economic fears surrounding the rate hikes and expectations of another 0.75% increase in November kept the U.S. Dollar on the front foot, despite marking heavy volatility around the announcements.
Uplifting the U.S. Dollar index (DXY) also was the latest remark by top FED officials. Raphael Bostic, the President of the Federal Reserve Bank of Atlanta, appeared on CBS' "Face The Nation" Sunday morning with a continued commitment to the 2% inflation target and a cautiously optimistic outlook on the path to get there. "I think we're going to do all that we can at the Federal Reserve to avoid deep pain." Bostic said, "Face the Nation." Bostic recognized that there would likely be job losses due to the Fed's actions. However, compared to prior Fed tightening, Bostic believes that "there is a good chance that if we have job losses, it will be smaller than what we've seen in other situations," he said on "Face the Nation." Bostic sees "positive momentum" in the economy despite two consecutive quarters of negative GDP growth, a signifier used by some to identify a recession.
Additionally, the ongoing Russia-Ukraine war continues to support the greenback. Russian President Vladimir Putin, last week on Wednesday, declared a partial mobilization of the country's 2-million-strong military reserve and confirmed his intention to annex those parts of Ukraine currently under Russian occupation.Ā Besides, he madeĀ a thinly-veiled threatĀ to use the country's nuclear arsenal to defend his conquests in Ukraine. In a reaction, German Economy Minister Robert Habeck said, "Partial mobilization of Russian troops is a bad and wrong development," adding that the "Government is in consultations on next step." Jens Stoltenberg, NATO's Secretary General, told Reuters that Russian President Putin's announcement of military mobilization and threat to use nuclear weapons was "dangerous and reckless rhetoric." It should be noted that a snap lockdown in China's steel hub Tangshan and the Asian Development Bank's (ADB) cut in the growth forecasts for developing Asia for 2022 and 2023 also played as risk-negative catalysts and drove flows away from the risk-sensitive Aussie dollar.
Risks to Asia's economic outlook, such as slowing Chinese growth and the fallout from rapid U.S. rate hikes, as well as post-COVID-19 challenges like food security, also continue to play a part in the Aussie dollar's struggle for any meaningful uptick. Additionally, the Aussie dollar's latest struggle could be attributed to the divergence between Fed Chairman Jerome Powell's hawkish tone and Reserve Bank of Australia (RBA) Governor Philip Lowe's hesitance in suggesting aggressive rate hikes.
As we advance, in the absence of significant market-moving economic news data from both dockets, the focus now shifts toward the U.S. Core Durable Goods order data which is expected to decline by 1.1% against a decline of 0.1% reported earlier. The report is slated for release on Tuesday during the early North American session. In the meantime, the US Bond Yields, along with the% broader market risk sentiment, will influence the U.S. Dollar and allow traders to grab some trading opportunities around the Pair.
Technical Outlook: Four-Hour AUD/USD Price Chart
From a technical perspective, spot prices are now looking to extend the momentum beyond the downward-sloping trendline from the August 2022 swing low. The move beyond the 0.65307 mark confirmed a solid bearish breakout and supported prospects for additional losses. Some follow-through selling would drag spot prices toward February 2020 monthly low at the 0.64362 level.
The RSI(14) level at 24.43 is flashing extreme oversold conditions and warrants some caution ahead of this week's key events/data risks. Additionally, The 20 and 50 Exponential Moving Average(EMA) crossover at the 0.68186 level further adds to the downside bias.
On the flip side, if buyers resurface and spark a bullish turnaround, initial resistance comes in at the lower trendline of the multi-descending channel pattern turned resistance level. Sustained strength above the aforementioned trendline will reaffirm the positive bias and pave the way for additional gains. The upward trajectory could then accelerate toward the supply zone ranging from 0.65738 - 0.65883 levels.
