Ella 
In the Asian market on Thursday, the AUD/USD continued the previous day’s sharp correction from above the 0.6500 psychological mark, which is a nearly three-week high, and continued to move lower. Sustained buying in the U.S. dollar pushed spot prices lower, to around the lower end of the weekly range of 0.6420-0.6415.
In fact, the U.S. Dollar Index (DXY), which tracks the greenback against a basket of currencies, is close to the six-month high hit last week and continues to be strongly supported by the Federal Reserve’s hawkish outlook. As widely expected, the U.S. central bank decided to keep interest rates unchanged at its two-day monetary policy meeting that ended on Wednesday. However, the Fed left the door open for another 25 basis point rate hike in 2023 and maintained its forecast that rates will peak at 5.5% to 5.75% by the end of this year. Additionally, policymakers now believe the Fed’s benchmark interest rate will hit 5.1% next year, suggesting just two rate cuts in 2024, compared with four previously expected.
This once again confirmed the argument of “maintaining higher interest rates for a longer period” and pushed the interest rate-sensitive two-year U.S. government bond yield to a 17-year high. Additionally, benchmark 10-year Treasury yields have climbed to their highest since late 2007, which, coupled with a softening risk tone, is seen as supporting AUD/USD causing further pressure. In addition, China’s insistence on launching more stimulus measures and speculation that the Reserve Bank of Australia (RBA) may have ended its interest rate hike cycle have provided support for AUD/USD. This, in turn, suggests that AUD/USD has the least resistance to the downside.
Even from a technical perspective, the short-term technical pattern of AUD/USD forming a bearish flag validates the bearish outlook for AUD/USD. That said, it would be prudent to wait for AUD/USD to sustain a break below the 0.6400 mark before positioning itself for the prospect of further AUD/USD losses. Market participants will now focus on U.S. economic data, which typically includes U.S. jobless claims last week, the Philadelphia Fed manufacturing index and existing home sales data. These data, along with U.S. bond yields and broader risk sentiment, could influence U.S. dollar volatility and create short-term trading opportunities for the AUD/USD pair ahead of Friday’s PMI release.
