AUD/USD DROPS TO FRESH WEEKLY LOWS, AROUND 0.7225 REGION AMID SUSTAINED USD BUYING

• A broad-based USD strength prompted aggressive selling around AUD/USD on Wednesday.
• Hawkish Fed expectations, surging US bond yields, the risk-off impulse underpinned the USD.
• A sustained break below the 0.7200 mark will set the stage for an extension of the downfall.

The USD buying picked up pace during the early European session and dragged the AUD/USD pair to fresh weekly lows, around the 0.7225 region in the last hour.

Having repeatedly failed to find acceptance above the 0.7300 round figure, the AUD/USD pair witnessed aggressive selling on Wednesday and was pressured by a broad-based US dollar strength. Following the recent pullback from one-year tops, the USD resumed its uptrend that has been underway since the Fed signalled that it would begin tapering its bond purchases by the end of 2021.

The markets also seem to have started pricing in the prospects for an interest rate hike in 2022 amid worries that the continuous surge in crude oil/energy prices will stoke inflation. This, in turn, pushed the yield on the benchmark 10-year US government bond to the highest level since June, which was seen as another factor that continued acting as a tailwind for the greenback.

Meanwhile, concerns that a faster than expected rise in inflationary pressure could derail the global economic recovery tempered investors’ appetite for riskier assets. This was evident from a sharp pullback in the equity markets. The risk-off impulse further benefitted the greenback’s relative safe-haven status and exerted additional downward pressure on the perceived riskier aussie.

With the latest leg down, the AUD/USD pair has now reversed a major part of its gains recorded over the past three trading sessions. However, bearish traders are likely to wait for a sustained break below the 0.7200 mark before placing fresh bets. The next relevant support is pegged near the 0.7175 area, below which the major seems all set to challenge YTD lows, around the 0.7100 area.

Market participants now look forward to the release of the US ADP report on private-sector employment for some impetus later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, traders will take cues from the broader market risk sentiment to grab some short-term opportunities around the AUD/USD pair.