AUDUSD retreats further from multi-week high amid pickup in USD demand

• A combination of factors prompts some selling around AUDUSD on Wednesday.
• Elevated US bond yields and a softer risk tone help revive demand for the USD.
• Not-so-hawkish remarks by RBA Deputy Governor Bullock weigh on the Aussie.

The AUDUSD pair comes under some selling pressure on Wednesday and extends the overnight late pullback from mid-0.6500s or its highest level since September 23. The pair drops to the 0.6470 area during the first half of the European session and for now, seems to have snapped a three-day winning streak amid a modest US Dollar uptick.

In fact, the USD Index stages a goodish bounce from a seven-week low touched the previous day and is supported by a combination of factors. Despite reduced bets for a more aggressive policy tightening by the Fed, the markets are still pricing in at least a 50 bps rate hike in December. This remains supportive of elevated US Treasury bond yields and helps revive the USD demand. This, along with a fresh leg down in the equity markets, offers additional support to the safe-haven buck and contributes to driving flows away from the risk-sensitive Aussie.

Adding to this, the not-so-hawkish remarks by the Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock weighs on the domestic currency. Speaking about the economic outlook, Bullock noted that there are good reasons to think we are approaching the peak of inflation this cycle. This suggests that the RBA could further slow the pace of its rate-hiking cycle and exerts some pressure on the Australian Dollar. The combination of the aforementioned fundamental factors supports prospects for a further intraday depreciating move for the AUDUSD pair.

In the absence of any major market-moving economic releases from the US, traders on Wednesday will take cues from speeches by New York Fed President John Williams and Richmond Fed President Thomas Barkin. This, along with the US bond yields and the broader market risk sentiment, might influence the USD price dynamics and provide some impetus to the AUDUSD pair. The focus, however, will remain glued to the latest US consumer inflation figures, due on Thursday.

Technical levels to watch