- AUD/USD came under renewed selling pressure on Tuesday despite a 50 bps rate hike by the RBA.
- The recent fall in commodity prices, recession fears continued weighing on the risk-sensitive aussie.
- Aggressive Fed rate hike bets lifted the USD to a fresh 20-year high and added to the selling bias.
The AUD/USD pair struggled to capitalize on the overnight recovery gains and met with a fresh supply in the vicinity of the 0.6900 mark on Tuesday. The intraday selling pressure dragged spot prices closer to the YTD low, around the 0.6780 region heading into the North American session.
The Australian dollar weakened broadly after the Reserve Bank of Australia (RBA), as was anticipated, hiked its key interest rate by 50 bps to 1.35% – the highest since May 2019. This marked the third successive month of a rate increase, though did little to impress bullish traders and was largely overshadowed by the worsening global economic outlook.
Investors remain concerned that rapidly rising interest rates and tightening financial conditions would pose challenges to global economic growth. Apart from this, the ongoing Russia-Ukraine war and the COVID-19 outbreak in China have been fueling recession fears. This led to a further decline in commodity prices and weighed on the resources-linked aussie.
This, along with the emergence of aggressive US dollar buying, exerted additional downward pressure on the AUD/USD pair. In fact, the USD shot to a fresh 20-year peak and continued drawing support from the prospects for more aggressive rate hikes by the Fed. Apart from this, the prevalent risk-off mood provided an additional boost to the safe-haven greenback.
The latest leg down validates the recent bearish breakdown and supports prospects for an extension of the recent depreciating move. Some follow-through selling below the YTD low, around the 0.6765 region touched last Friday, will reaffirm the negative outlook and drag the AUD/USD pair towards testing the next relevant support near the 0.6700 mark.
Market participants now look forward to the US economic docket, featuring the release of Factory Orders data. This, along with the broader market risk sentiment, will influence the USD price dynamic and provide some impetus to the AUD/USD pair. The focus, however, will remain on Wednesday's release of the FOMC minutes and the US monthly jobs report on Friday.