AUD/USD on Bearish Slide Following Mounting Pressure Ahead of NFPs

The AUD/USD pair continues its previous day’s post-FOMC decline from close to the psychological level of 0.6500 on Thursday and continues to be under some selling pressure. The decline, which is fueled by widespread USD strength, pushes spot prices below the 0.6300 level and to their lowest point in one and a half weeks during the first part of the European session.

After a brief period of mild decline, the US dollar attracts active purchasing, reaching a nearly two-week high amid expectations for further US Federal Reserve policy tightening.

On Wednesday, Jerome Powell, the chairman of the Federal Reserve, brushed down rumors of a dovish turn and asserted that it was too early to talk about a break in the rate-hiking cycle. Powell further stated that the terminal rate will remain higher than expected.

A strong increase in US Treasury bond yields adds credence to investors’ growing conviction that the US central bank will keep raising interest rates to fight inflation. In fact, for the first time since May 2006, the yield on the rate-sensitive two-year US government bond briefly exceeded 5.0%. The benchmark 10-year Treasury note also maintains a comfortable lead over the 4.0% level.

This, together with the general sense of caution, gives the safe-haven dollar a boost and helps divert flows away from the risk-averse Australian dollar. A new trigger for negative traders was spotted from a technical standpoint in the overnight continuous weakening and closure below the 0.6400 level. This may be another reason contributing to the continued downward trend in the AUD/USD pair.

AUD/USD Dynamics to Be Determined by Near-Term US Economic Docket

Traders are now anticipating the US economic docket, which will feature a focus on the ISM Services PMI. This might affect the USD’s price dynamics and give the AUD/USD pair some momentum, coupled with US bond yields and the general risk mood. After that, attention will shift to the Friday release of the closely-followed US Non-Farm Payrolls (NFPs).