- Renewed USD buying interest prompted some fresh selling around AUD/USD on Tuesday.
- The Fed’s hawkish shifts, the overnight rally in the US bond yields underpinned the USD.
- A softer risk tone further weighed on the perceived riskier aussie ahead of Powell’s testimony.
The AUD/USD pair refreshed daily lows in the last hour, with bears making a fresh attempt to extend the downward trajectory below the key 0.7500 psychological mark.
The pair failed to capitalize on the previous day's modest recovery move from six-month lows, instead met with some fresh supply in the vicinity of the very important 200-day SMA. Following a modest pullback on Monday, the US dollar was back in demand and remained well supported by the Fed's sudden hawkish turn last week. This, in turn, was seen as a key factor that exerted some fresh downward pressure on the GBP/USD pair.
It is worth recalling that the Fed surprised investors at the end of June policy meeting and brought forward its timetable for the first post-pandemic interest rate hikes. The so-called dot plot pointed to two rate hikes by the end of 2023 as against policymakers projection for no increase until 2024 in the March meeting. This, along with the overnight solid rebound in the US Treasury bond yields, further underpinned the greenback.
Adding to this, a generally softer tone around the equity markets also benefitted the greenback's relative safe-haven status and acted as a headwind for the perceived riskier aussie. With the latest leg down, the AUD/USD pair has now eroded a major part of the overnight gains and seems vulnerable to slide further. That said, slightly overstretched conditions warrant some caution before placing aggressive bearish bets.
Market participants now look forward to the US economic docket – featuring the second-tier releases of Existing Home Sales and Richmond Manufacturing Index. The key focus, however, will remain on the Fed Chair Jerome Powell's testimony before the House Select Subcommittee on the Coronavirus Crisis. Apart from this, the US bond yields will influence the US price dynamics and allow traders to grab some short-term opportunities around the AUD/USD pair.