AUD/USD dives to over two-week low, remains vulnerable to slide further

• A combination of factors prompted aggressive selling around AUD/USD on Thursday.
• The Fed’s hawkish outlook, rising US bond yields continued underpinning the USD.
• The risk-off impulse further drove flows away from the perceived riskier aussie.

The AUD/USD pair remained under heavy selling pressure through the first half of the European session and slipped below mid-0.7100s, or over a two-week low in the last hour.

The pair witnessed aggressive selling on Thursday and extended the previous day's turnaround from the vicinity of the 100-day SMA resistance, near the 0.7275-80 region. The US dollar continued drawing some support from surprisingly hawkish FOMC meeting minutes released on Wednesday. This, along with the cautious market mood drove flows way from the perceived riskier aussie.

The December 14-15 FOMC monetary policy meeting minutes indicated that the US central bank could hike interest rates earlier than anticipated previously to combat high inflation. The markets were quick to react and started pricing in the prospects for an eventual liftoff in March. This, in turn, continued pushing the US Treasury bond yields higher and underpinned the greenback.

In fact, the US 2-year notes, which are sensitive to rate hike expectations along with 5-year notes, jumped to a near two-year high. Moreover, the yield on the benchmark 10-year US government bond shot to the highest level since October. This, along with worries about the spread of the Omicron variant, weighed on investors' sentiment and further benefitted the safe-haven USD.

The combination of factors dragged the AUD/USD pair below the previous weekly swing low, around 0.7180 region, which coincided with a one-month-old ascending trend-line. Hence, the downfall could also be attributed to some technical selling. Moreover, the trend-line breakdown might have already set the stage for a further intraday depreciating move towards the 0.7100 round figure.

Market players now look forward to the US economic docket, highlighting the releases of the usual Weekly Initial Jobless Claims and ISM Services PMI later during the early North American session. Apart from this, the US bond yields and the broader market risk sentiment should influence the USD price dynamics, which, in turn, would provide some impetus to the AUD/USD pair.

Technical levels to watch