AUD/USD clings to two-year low above 0.6600 after Fed showdown, Russia-inspired fears

• AUD/USD bears take a breather at multi-month low after a volatile day.
• Fed matches market forecasts of 75 bps Fed rate hikes.
• Powell defends rate hike trajectory, suggests more pain ahead.
• Second-tier US data, risk catalysts will be important for fresh impulse.

AUD/USD holds lower ground at a 28-month low surrounding 0.6620, after refreshing the multi-day bottom the previous day, as traders catch a pause after a volatile day thanks to the Fed and Russia. Also keeping the Aussie pair unchanged is the lack of major data/events on the calendar during early Wednesday.

The US Federal Reserve (Fed) announced 75 basis points (bps) of a rate hike, the third one in a line of such kind, as it wants to tame inflation fears even at the cost of a “sustained period of below-trend growth” and a softening in the labour market. Fed Chairman Jerome Powell also signalled that the way to tame inflation isn’t painless ahead. While the Fed matched market forecasts, the economic fears surrounding the rate hikes and expectations of another 0.75% increase in November kept the US Dollar on the front foot, despite marking heavy volatility around the announcements.

Elsewhere, Russian President Vladimir Putin threatened the West on Wednesday, noting that “We have lots of weapons to reply, it is not a bluff.” Following him was Russian Defence Minister Sergei Shoigu who said that “We are fighting not only with Ukraine but the collective west.” In a reaction, German Economy Minister Robert Habeck said, “Partial mobilization of Russian troops is a bad and wrong development,” adding that the “Government is in consultations on next step.” Jens Stoltenberg, NATO's Secretary General, told Reuters that Russian President Putin's announcement of military mobilization and threat to use nuclear weapons was "dangerous and reckless rhetoric."

It should be noted that a snap lockdown in China’s steel hub Tangshan and the Asian Development Bank’s (ADB) cut in the growth forecasts for developing Asia for 2022 and 2023 also played as risk-negative catalysts.

Amid these plays, Wall Street ended the day on a negative tone while the US Treasury yields also dropped amid the market’s rush for risk safety, which in turn drowned the AUD/USD prices due to the pair’s risk-barometer status.

Looking forward, AUD/USD traders may witness a lack of major moves as the Fed has played its role. However, risk catalysts surrounding Russia and China might entertain the pair traders ahead of the US session wherein the second-tier numbers may direct intraday moves.

Technical analysis

The lower line of the four-month-old bearish channel, around 0.6560 by the press time, lures AUD/USD bears unless the prices remain below a two-month-old support line, near 0.6710 at the latest.