AUD/USD plummets to 0.6970-65 area, lowest since July 2020 amid stronger USD/risk-off

• AUD/USD extended its recent downfall and dived to the lowest level since July 2020 on Friday.
• The Fed's hawkish stance, elevated US bond yields underpinned the USD and exerted pressure.
• The risk-off mood further contributed to driving flows away from the perceived riskier aussie.

The AUD/USD pair continued losing ground through the mid-European session and dropped to its lowest level since July 2020, around the 0.6970-0.6965 region in the last hour.

Following an early uptick to the 0.7045 area, the AUD/USD pair met with a fresh supply on the last day of the week and prolonged its recent rejection slide from the 100-day SMA. This marked the third successive day of a negative move – also the fifth in the previous six – and was sponsored by a combination of factors.

The US dollar remained well supported by expectations for a more aggressive policy response by the Fed to contain stubbornly high inflation. In fact, the markets have started pricing in the possibility of five quarter-point rate hikes by the end of 2022 and also expect that the first hike in March could be 50 basis points.

This was reinforced by a fresh leg up in the US Treasury bond yields, which continued acting as a tailwind for the buck. Apart from this, the risk-off mood – as depicted by a weaker tone around the equity markets – further benefitted the safe-haven greenback and drove flows away from the perceived riskier aussie.

The combination of negative forces contributed to the AUD/USD pair's ongoing decline, taking along some short-term trading stops placed near the key 0.7000 psychological mark. Hence, the latest leg down witnessed over the past hour or so could further be attributed to some technical selling below the mentioned handle.

It will now be interesting to see if the AUD/USD pair is able to find any support at lower levels amid slightly oversold conditions on short-term charts. Market participants now look forward to the US macro data – the Core Personal Consumption Expenditure Price index and revised Michigan Consumer Sentiment Index – for a fresh impetus.

Technical levels to watch