AUD/USD keeps the red below 0.7100 mark, over two-month low post-US GDP

• AUD/USD dropped to over a two-month low on Thursday amid the relentless USD buying.
• The prospects for more aggressive Fed rate hikes continued acting as a tailwind for the buck.
• The USD bulls seemed rather unaffected by the disappointing release of the US Q1 GDP.

The AUD/USD pair witnessed an intraday turnaround from the 0.7160 area and dropped to its lowest level since February 7 during the early North American session. The pair, however, managed to rebound a few pips in reaction to the dismal US GDP print and was last seen trading just below the 0.7100 mark, down over 0.40% for the day.

Broad-based US dollar strength remains a key theme in the FX market on Thursday and growing acceptance that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation. The bets were reaffirmed by hawkish remarks from influential FOMC members last week, including Fed Chair Jerome Powell.

The Fed is expected to hike interest rates by 50 bps when it meets on May 3-4, and again in June and July, and ultimately lift rates to around 3.0% by the end of the year. The USD buying remained unabated after the Advance US GDP report showed that the economy unexpectedly contracted by 1.4% in the first quarter of 2022.

This, along with the risk-on impulse in the markets, acted as a headwind for the safe-haven USD and extended some support to the perceived riskier aussie. The disappointment, however, was largely offset by a sharp rise in the GDP Price Index, which jumped to 8% in Q1 and reaffirmed the prospects of rapid Fed rate hikes.

The fundamental backdrop seems tilted firmly in favour of the USD bulls and supports prospects for a further near-term depreciating move for the AUD/USD pair. The emergence of fresh selling on Thursday adds credence to the negative outlook, suggesting that any attempted recovery is more likely to be short-lived.

Technical levels to watch