AUD/USD adds to post-RBA losses, plummets to fresh YTD low ahead of Fed’s Powell

• AUD/USD dives to a fresh YTD low on Tuesday and is pressured by a combination of factors.
• A dovish assessment of the RBA policy statement weighs heavily on the domestic currency.
• Hawkish Fed expectations underpin the USD and contribute to the steep intraday downfall.
• Acceptance below 0.6700 aggravates bearish pressure ahead of Fed Chair Powell’s testimony.

The AUD/USD pair comes under intense selling pressure on Tuesday and drops to its lowest level since late December heading into the North American session. The pair is currently placed around the 0.66600.6665 region, down nearly 1% for the day, and seems vulnerable to decline further.

The Australian Dollar is turning out to be the worst-performing G10 currency amid a dovish assessment of the Reserve Bank of Australia's (RBA) policy statement, which, along with renewed US Dollar buying, exerts heavy pressure on the AUD/USD pair. In fact, the Australian central bank earlier this Tuesday raised its cash rate to the highest level since June 2012, though signalled that it might be nearing the end of its rate-hiking cycle. The speculations were fueled by the accompanying policy statement, wherein the RBA changed a reference from “further increases in rates” to “further tightening of monetary policy” would be needed.

In contrast, the Federal Reserve is universally expected to stick to its hawkish stance and keep interest rates higher for longer to tame stubbornly high inflation. This, in turn, continues to act as a tailwind for the Greeback, which further contributes to the heavily offered tone surrounding the AUD/USD pair. The steep intraday decline, meanwhile, confirms a breakdown below a one-week-old trading range support, around the 0.6690 zone, and further aggravates the bearish pressure. This, along with China's more conservative outlook for 2023 GDP growth, suggests that the path of least resistance for the China-proxy Aussie is to the downside.

Bearish traders, however, might take a breather and refrain from placing fresh bets ahead of Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee, due later during the North American session. Investors will look for fresh cues about the Fed's future rate-hike path, which will play a key role in influencing the near-term USD price dynamics and determine the next leg of a directional move for the AUD/USD pair. Nevertheless, the fundamental backdrop seems tilted firmly in favour of bearish traders. Hence, any meaningful recovery attempt might still be seen as a selling opportunity and remain capped.

Technical levels to watch