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AUD/USD dips for second straight day, sinks to near two-month low
Risk aversion, China’s economic woes and RBA on hold weigh on Aussie
Falling U.S. Treasury yields weigh on dollar, but fail to support pair
AUD/USD was under pressure for the second day in a row on Wednesday and continued to trade lower in early European trading. spot price in the past
It fell to a near two-month low near 0.6575 in an hour and looked vulnerable to extending the losses of the past three weeks.
Global risk sentiment was hit after Fitch downgraded the US long-term foreign currency issuer default rating (IDR) to ‘AA+’ from ‘AAA’ based on deteriorating fiscal conditions over the next three years. Coupled with China’s economic woes and the Reserve Bank of Australia keeping the official cash rate unchanged for the second consecutive month, the Australian dollar was weighed heavily. Even a slight pullback in the greenback failed to lift Aussie bulls or provide any support for the pair.
Global risk aversion sparked a slight drop in U.S. Treasury yields, but failed to help the dollar capitalize on a two-week rally to its highest level since July 10 hit on Tuesday. Indeed, the U.S. dollar index (DXY), which tracks the greenback against a basket of currencies, has so far struggled to break above the technically important 100-day simple moving average (SMA). Still, mounting bets on further policy tightening by the Federal Reserve continued to boost the dollar and limit its intraday losses.
It is worth recalling that Fed Chairman Jerome Powell said that the economy still needs to slow down and that the job market will weaken, which has allowed inflation to credibly return to the 2% target level. In addition, US macro data point to an extremely strong economy, opening the door to another rate hike in September or November. Coupled with the fact that the exchange rate effectively fell below the 0.6600 integer mark, it supports the short position of AUD/USD and shows that its path of least resistance is still down.
Market participants are now looking to the U.S. ADP private sector employment data, which will be released early in the North American session. In addition, US Treasury yields will affect the price of the US dollar and give AUD/USD a new impetus. Traders will take cues from broader risk sentiment to seize short-term opportunities. The focus, however, remains on the key U.S. non-farm payrolls report due on Friday.
