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Title: AUD/USD descends to its lowest since April 2020 amid broad-based USD strength

September 28, 2022 03:05 AM ET

By: AnalysisWatch

The AUD/USD pair came under renewed selling pressure on Wednesday, sliding below the 0.6400 level for the first time since April 2020. The pair has maintained its offered tone during the early European session and is currently trading in the 0.6370-0.6365 range, down more than 1.0% on the day.

A combination of supportive factors is lifting the US dollar to a fresh two-decade high, which in turn should put downward pressure on the AUD/USD pair. Aggressive comments from Fed officials overnight reinforce the Fed's outlook for more aggressive monetary tightening and support a further rise in U.S. Treasury yields. This, along with low-risk sentiment, continues to support the safe-haven dollar.

Minneapolis Fed President Neel Kashkari said Tuesday that policymakers are determined to do whatever is necessary to bring inflation down. Charles Evans, president of the Chicago Fed, added that the Fed needs to raise interest rates to a range between 4.50% and 4.75%. The yield on the 10-year U.S. Treasury bond rose above 4% for the first time since April 2010 following these comments.

Meanwhile, investors continue to fear that Fed policy could plunge the economy into recession. In addition, the risk of a further escalation of the Russia-Ukraine conflict continues to weigh on global risk sentiment. This is reflected in generally weaker sentiment in equity markets, leading to an inflow into the dollar and reinforcing the selling tendency of the risk-sensitive Australian exchange rate.

With the recent downside move, the AUD/USD pair confirms this week's downside break through the lower end of a multi-month downtrend channel. A subsequent decline and a move below the 0.6400 level may have already set the stage for an extension of the downtrend. Therefore, some follow-through weakness remains quite possible until the test of the next relevant support around the 0.6300 le

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