AUD/USD hangs near multi-week low, around 0.7420-15 area amid modest USD strength

• AUD/USD met with a fresh supply on Wednesday amid sustained USD buying.
• The Fed’s hawkish outlook pushed the key USD Index to a near two-year high.
• The risk-on impulse might cap the safe-haven buck and lend support to the pair.

The AUD/USD pair maintained its offered tone through the first half of the European session and was last seen trading near the daily low, around the 0.7420 region.

Following an early uptick to the 0.7475 area, the AUD/USD pair met with a fresh supply on Wednesday and has now moved well within the striking distance of the three-week low touched the previous day. The US dollar continued drawing support from the prospects for a more aggressive policy tightening by the Fed and climbed to its highest level since May 2020. This, in turn, was seen as a key factor that exerted some downward pressure on spot prices.

Despite signs that core inflation in the US is easing, investors seem convinced that the Fed will hike interest rates at a faster pace. The bets were reinforced by Fed Governor Lael Brainard's comments that the US central bank will proceed with a series of interest rate hikes, as well as an effort to trim its balance sheet. This, along with a goodish rebound in the US Treasury bond yields, continued lending some support to the greenback.

That said, a solid recovery in the risk sentiment - as depicted by a generally positive tone around the equity markets - capped the safe-haven USD and extended support to the perceived riskier aussie. Nevertheless, the overnight failure ahead of the 0.7500 psychological mark and the subsequent downfall favours bearish traders. This, in turn, suggests that the path of least resistance for the AUD/USD pair remains to the downside.

The technical set-up supports prospects for an extension of the recent sharp pullback from the 0.7660 region, or the highest level since June 2021 and a further near-term depreciating move. Sustained weakness below the 0.7400 mark will reaffirm the negative bias and drag the AUD/USD pair towards the 0.7330-0.7325 region. The said area marks ascending trend-line support extending from the YTD low and should act as a pivotal point.

Market participants now look forward to the US economic docket, featuring the release of the Producer Price Index later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide a fresh impetus to the AUD/USD pair. Traders will further take cues from the broader risk sentiment to grab some short-term opportunities.

Technical levels to watch