AUD/USD slides below mid-0.7100s, over two-week low amid weaker risk tone/stronger USD

• AUD/USD witnessed some selling for the second straight day and dropped to over a two-week low.
• Hawkish Fed expectations underpinned the USD and turned out to be a key factor exerting pressure.
• A generally weaker risk tone also contributed to drive flows away from the perceived riskier aussie.

The AUD/USD pair continued losing ground through the first half of the European session and dropped to over a two-week low, further below mid0.7100s in the last hour.

The pair extended last seek's rejection slide from the 100-day SMA resistance and witnessed some follow-through selling for the second successive day on Monday. The US dollar continued drawing some support from expectations that the Fed will tighten its monetary policy at a faster pace than anticipated. This, in turn, was seen as a key factor dragging the AUD/USD pair lower.

The markets seem convinced about an eventual Fed lift-off in March and have been pricing in a total of four hikes in 2022. This has been fueling concerns that rising borrowing costs could dent the earnings outlook for companies. This, along with escalating geopolitical tensions, weighed on investors' sentiment and further collaborated to drive flows away from the perceived riskier aussie.

Apart from this, the downfall could further be attributed to some technical selling below a short-term ascending trend-line support, around the 0.7200 mark, which was broken on Friday. The subsequent downfall might already set the stage for a further near-term depreciating move. Hence, a slide towards testing the next relevant support, around the 0.7100 mark, remains a distinct possibility.

Market participants now look forward to the release of the flash US PMI prints, due later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD and provide some impetus to the AUD/USD pair. The focus, however, will remain on the outcome of the FOMC meeting, scheduled to be announced on Wednesday.

Technical levels to watch