AUD/USD slumps to fresh weekly lows around 0.7120, eyes 21DMA as ECB hits risk appetite

• AUD/USD slumped to the low-0.7100s from near 0.7200 on Thursday as risk appetite worsened after a hawkish ECB announcement.
• That meant fresh weekly lows for the pair that failed to derive a lasting boost from this week’s RBA surprise.
• Having now snapped a medium-term uptrend, the pair is eyeing a test of its 21DMA.

The Australian dollar turned sharply lower on Thursday as broader market risk appetite took a turn for the worse in wake of the ECB’s hawkish policy announcement (which weighed on European equities) and amid a fall in industrial metal prices, with Bloomberg’s Industrial Metal Subindex last down around 2.0% on the day as traders watch Covid-19 updates in China.

As a result, AUD/USD has slumped nearly 1.0% from the upper 0.7100s to fresh weekly lows around the 0.7120 mark and is eyeing a test of its 21-Day Moving Average around the 0.7100 level. Tuesday’s post-larger than expected RBA rate hike and more hawkish than expected RBA rate guidance upside in the Aussie has proven short-lived.

Technicians will likely view the recent drop in AUD/USD as signaling the end of a bull run that had seen the pair rally over 6.5% from multi-year lows in low-0.68s to last week’s highs in the upper 0.7200s. Ahead, the main event for the remainder of the week will be Friday’s US Consumer Price Inflation report.

If the data reveals US price pressures to have eased in May, then that could provide AUD/USD with some respite via 1) a weaker US dollar as traders pare back their Fed tightening bets ahead of next week’s meeting and 2) via a likely improvement in risk appetite as inflation fears ebb.

AUD/USD bulls will be hoping for US inflation to trend lower from here on out, meaning a lasting drop in the buck and improvement in risk appetite, which could see AUD/USD resume its recent uptrend. But for now, traders will likely want to keep their powder dry.