AUD/USD flirts with daily low, holds above 0.6700 mark ahead of Fed’s Powell

• AUD/USD witness fresh selling on Thursday after the less-hawkish remarks by RBA’s Lowe.
• The USD stalls the overnight pullback from a two-decade high amid hawkish Fed expectations.
• Recession fears further underpin the buck and drives flows away from the risk-sensitive aussie.
• Investors now look forward to Fed Chair Jerome Powell’s speech for some meaningful impetus.

The AUD/USD pair struggles to capitalize on the overnight goodish rebound from sub-0.6700 levels, or its lowest level since July 14 and meets with a fresh supply on Thursday. The pair remains depressed through the first half of the European session and is currently placed around the 0.6730 region.

The Australian dollar comes under renewed selling pressure after Reserve Bank Governor Philip Lowe signalled a potential end to outsized interest-rate increases. Lowe said that policy has tightened very quickly and highlighted lags in its flow-through to the economy and that the case for a slower pace of increase in interest rates becomes stronger. This, in turn, forced traders to trim bets for at least one more 50 bps rate hike in 2022.

The US dollar, on the other hand, stalls the previous day's sharp retracement slide from a two-decade high and continues to draw support from hawkish Fed expectations. In fact, the markets seem convinced that the Fed will continue to tighten its monetary policy at a faster pace to tame inflation and has been pricing in a supersized 75 bps rate hike in September. Apart from this, the cautious mood further underpins the safe-haven buck.

The prospects for rapid interest rate hikes, along with economic headwinds stemming from fresh COVID-19 curbs in China and the protracted war in Ukraine, have been fueling recession fears. This continues to weigh on investors' sentiment, which further contributes to driving flows away from the risk-sensitive aussie. The fundamental backdrop suggests that the path of least resistance for the AUD/USD pair remains to the downside.

Thursday's key focus will be on Fed Chair Jerome Powell's scheduled speech, due later during the early North American session. This, along with the broader risk sentiment, might influence the USD and provide some impetus to the AUD/USD pair. Traders will further take cues from the European Central Bank decision, which should infuse some volatility in the FX markets and assist traders to grab short-term opportunities around the major.

Technical levels to watch