AUDUSD extends losses towards key 0.6855 support amid cautious mood

• AUDUSD returns to the red after the early recovery to near 0.6930.
• Recession fears revive the dollar’s safe-haven demand, as Powell disappoints.
• Daily technical setup risks a test of the critical support at 0.6855.

AUDUSD is trading close to 0.6900, having failed to sustain the tepid bounce near the 0.6930 region. The US dollar is seeing a fresh demand on the return of risk-off flows in Thursday’s Asian trading, as investors remain worried about a looming risk of a global recession.

Fed Chair Jerome Powell showed the central bank’s commitment to fighting inflation, which caused the market to believe that the aggressive Fed’s tightening stance could tip the US economy into a recession. Further, the ongoing Ukraine war and China’s covid lockdowns are likely to keep the pressure up on inflation, and therefore, would compel global central bankers to act firmly to combat it.

Meanwhile, amidst a dire global economic outlook, bulls are unable to capitalize on the expectations that the RBA will deliver bigger and more rapid rate increases. Attention once again turns towards the second day of Powell’s testimony for further clarity on the rate hike track. The US business PMI reports will be also closely examined.

From a short-term technical perspective, AUDUSD is heading back towards the previous day’s low of 0.6880, which if taken out on a sustained basis will open floors towards the rising trendline support at 0.6855.

A sharp sell-off below the latter cannot be ruled out, with sellers setting their eyes on the May 12 low of 0.6828.

 The 14-day Relative Strength Index (RSI) is pointing south below the midline, backing the downside bias.

AUD/USD: Daily chart

Alternatively, AUD bulls need to crack the daily highs at 0.6929 to initiate any meaningful recovery towards the 0.6950 psychological level.

Daily closing above the aforesaid resistance will put the focus back on the 0.7000 supply zone.

AUD/USD: Additional levels to consider