AUD/USD flirts with multi-week low, around mid-0.6800s amid sustained USD buying/risk-off

• AUD/USD falls to a multi-week low on Monday and is pressured by a combination of factors.
• Bets for aggressive Fed rate hikes, elevated US bond yields push the USD to a 20-year peak.
• The risk-off mood also benefits the safe-haven buck and weighs on the risk-sensitive aussie.

The AUD/USD pair witnessed some follow-through selling for the second straight day on Monday and drops to a six-week low during the early part of the European session. Currently placed around mid-0.6800s, spot prices have now retreated over 150 pips from levels just above the 0.7000 psychological mark touched on Friday amid a blowout US dollar rally.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, shot to a fresh 20-year high amid expectations for a more aggressive policy tightening by the Fed. The markets are pricing in a greater chance for a supersized 75 bps Fed rate hike move in September and the bets were reaffirmed by Fed Chair Jerome Powell's hawkish remarks on Friday.

During his speech at the Jackson Hole Symposium squashed hopes of a dovish pivot and signalled that interest rates would be kept higher for longer to bring down soaring inflation. A further rise in the US Treasury bond yields reinforces market expectations, which, along with the risk-off mood, offers additional support to the safe-haven buck and weighs on the risk-sensitive aussie.

The combination of aforementioned factors offset the upbeat Australian Retail Sales, which surpassed expectations by a big margin and rose 1.3% in July. Even the prospects for another 50 bps rate hike by the Reserve Bank of Australia at the next policy meeting on September 6 did little to impress bullish traders or provide any respite to the AUD/USD pair, favouring bearish traders.

In the absence of any major market-moving economic releases from the US, the prevalent strong bullish sentiment surrounding the USD adds credence to the near-term negative outlook. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside and any meaningful recovery attempt could now be seen as a selling opportunity.

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