AUD/USD slides to its lowest level since mid-July, seems vulnerable to weaken further

• AUD/USD struggles to capitalize on its intraday gains despite another 50 bps rate hike by the RBA.
• The risk-on mood undermines the safe-haven USD, though fails to benefit the risk-sensitive aussie.
• Hawkish Fed expectations favour the USD bulls and support prospects for further losses for the pair.

The AUD/USD pair witnessed an intraday turnaround from the 0.6830-0.6835 area on Tuesday and drops to its lowest level since mid-July during the first half of the European session. The pair is currently placed around the 0.6760 region and seems vulnerable to prolonging a nearly one-month-old descending trend.

Despite the Reserve Bank of Australia's decision to hike interest rates by 50 bps rate, the Australian dollar struggles to capitalize on its modest intraday gains. Expectations that the RBA is nearing the end of its rate hike cycle turn out to be a key factor acting as a headwind and attracting fresh selling around the AUD/USD pair.

Even the risk-on impulse, which is seen dragging the safe-haven US dollar away from a two-decade high touched the previous day, fails to impress bulls. The global risk sentiment stabilizes after China pledged to make renewed efforts to boost its economy. This, however, did little to lend any support to the risk-sensitive aussie.

Growing recession fears, along with the economic headwinds stemming from fresh COVID-19 curbs in China and the ongoing war in Ukraine, should keep a lid on any optimistic move. Apart from this, hawkish Fed expectations should limit the USD losses, suggesting that the path of least resistance for the AUD/USD pair is to the downside.

In fact, the markets seem convinced that the Fed will tick to its aggressive policy tightening path and have been pricing in a greater chance of a supersized 75 bps rate hike at the September meeting. This is reinforced by a fresh leg up in the US Treasury bond yields, which supports prospects for the emergence of some USD dip-buying.

Market participants now look forward to the US economic docket, featuring the release of the ISM Services PMI later this Tuesday. The data might influence the USD price dynamics and provide some impetus to the AUD/USD pair. The focus will then shift to the quarterly Australian GDP report, scheduled during the Asian session on Wednesday.

Technical levels to watch