AUD/USD Outlook: Seems vulnerable to retest YTD low, focus remains on Fed’s Powell

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  • AUD/USD languished near the 0.6900 mark on Wednesday amid a stronger USD.
  • Upbeat Australian Retail Sales data did little to impress bulls or lend any support.
  • Investors await Fed Chair Jerome Powell’s speech for a fresh directional impetus.

The AUD/USD pair witnessed an intraday turnaround from a multi-day high touched on Tuesday and finally settled in the red for the second successive day amid resurgent US dollar demand. The early optimism led by China’s announcement to ease quarantine requirements for inbound passengers fizzled out rather quickly in the wake of the growing risk of a recession. Investors remain concerned that a more aggressive move by major central banks to get inflation in check would pose challenges to the global economic recovery. This, in turn, triggered a fresh wave of the global risk-aversion trade, which boosted demand for traditional safe-haven assets. The anti-risk flow assisted the USD to snap a two-day losing streak to over a one-week low and weighed on the risk-sensitive aussie.

The global flight to safety dragged the US Treasury bond yields lower and held back the USD bulls from placing aggressive bets. Apart from this, better-than-expected Australian macro data helped limit further losses, at least for the time being. The Australian Bureau of Statistics (ABS) reported this Wednesday that Retail Sales recorded growth for the fifth straight month and came in at 0.9% in May as against the 0.4% estimated. Despite the supporting factors, the AUD/USD pair, so far, has struggled to gain any meaningful traction and held steady around the 0.6900 mark through the Asian session. Market participants now seemed reluctant to place aggressive bets ahead of Fed Chair Jerome Powell’s speech at the ECB forum in Sintra, Portugal for a fresh directional impetus.

Technical outlook

From a technical perspective, the emergence of fresh selling at higher levels favours bearish traders and supports prospects for further losses. Some follow-through selling below the 0.6870-0.6865 region will reaffirm the negative bias and drag the AUD/USD pair back towards the monthly low, around the mid-0.6800s. The downward trajectory could get extended towards the 0.6830-0.6825 region, or the YTD low touched in May en-route the 0.6800 round-figure mark.

On the flip side, the 0.6960 area now seems to have emerged as an immediate strong resistance, above which the AUD/USD pair might aim back to reclaim the 0.7000 psychological mark. Sustained strength beyond could trigger a short-covering move and lift spot prices to the 0.7045-0.7050 supply zone. Some follow-through buying would suggest that the pair have formed a near-term bottom and pave the way for a move towards the 0.7100 round figure.