AUD/USD remains depressed below 0.7100 mark amid risk-off, downside seems cushioned
- AUD/USD witnessed some selling on Tuesday and was pressured by a combination of factors.
- Recession fears underpinned the safe-haven USD and weighed on the perceived riskier aussie.
- RBA’s hawkish signal might help limit deeper losses ahead of the US PMIs and Powell’s speech.
The AUD/USD pair came under some renewed selling pressure on Tuesday and eroded a part of the previous day's positive move to a two-and-half-week high. The pair remained on the defensive through the early European session and was last seen trading near the daily low, around the 0.7075-0.7070 region.
The latest optimism led by the loosening of COVID-19 lockdowns in China faded rather quickly amid the worsening global economic outlook. Investors remain worried that a more aggressive move by major central banks to curb soaring inflation could pose challenges to the global economy. Adding to this, the Russia-Ukraine war and the latest COVID-19 outbreak in China have been fueling recession fears. This, in turn, triggered a fresh wave of the global risk-aversion trade, which assisted the safe-haven US dollar to stage modest recovery from the monthly low and weighed on the risk-sensitive aussie.
The greenback was further underpinned by expectations that the US central bank would need to take more drastic action to bring inflation under control. Hence, the focus will remain glued to Fed Chair Jerome Powell's speech later this Tuesday and the latest FOMC meeting minutes, scheduled for release on Wednesday. Given that a 50 bps rate hike move over the next two meetings is fully priced in, market participants will look for clues about the possibility of a jumbo 75 bps rate hike in June. This will influence the USD price dynamics and provide a fresh directional impetus to the AUD/USD pair.
In the meantime, the Australian dollar might draw support from the Reserve Bank of Australia's hawkish signal and help limit deeper losses for the AUD/USD pair. This, in turn, warrants some caution before placing aggressive bearish bets. Traders now look forward to the release of the global PMI prints, which will drive the broader market risk sentiment. Apart from this, the USD price dynamics would also contribute to producing short-term opportunities.
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