AUD/USD seems vulnerable near three-month low, below 0.7200 mark

• AUD/USD failed to preserve its modest intraday gains, or find acceptance above the 0.7200 mark.
• The divergent Fed-RBA monetary policy outlooks support prospects for additional near-term losses.

The AUD/USD pair witnessed some selling during the first half of the European session and dropped to a near three-month low, around the 0.7180 region in the last hour.

Having struggled to find acceptance above the 0.7200 mark, the AUD/USD pair met with fresh supply on Thursday and now seems all set to prolong a near one-month-old bearish trend. The intraday US dollar profit-taking slide remained cushioned amid hawkish Fed expectations, which, in turn, acted as a headwind for the major.

The markets seem convinced that the Fed would be forced to raise interest rates sooner rather than later to contain stubbornly high inflationary pressures. The bets were reinforced by Wednesday's release of the US PCE Price Index – which accelerated to a 30 year high in October – and the FOMC monetary policy meeting minutes.

In fact, the Fed officials were open to speeding up the tapering of the bond-buying program and move quickly to raise interest rates if high inflation persists. Conversely, the Reserve Bank of Australia has made every effort to push back expectations for a rate hike. The Fed-RBA divergent policy outlooks favour the AUD/USD bears.

That said, relatively thin liquidity conditions on the back of the Thanksgiving holiday in the US might hold back traders from positioning for any further intraday slide. Nevertheless, the AUD/USD pair seems vulnerable to breakthrough intermediate support near the 0.7170 region and challenge YTD low, around the 0.7100 mark touched in August.

Technical levels to watch