- AUD/USD drifts lower for the second straight day and drops back closer to the monthly low.
- Hawkish Fed expectations, looming recession risks benefit the USD and exert some pressure.
- Investors keenly await the FOMC minutes to determine the near-term trajectory for the pair.
The AUD/USD pair adds to the previous day’s heavy losses and remains under some selling pressure for the second successive day on Wednesday. The steady intraday descent extends through the early European session and drags spot prices to the 0.6825-0.6820 area, back closer to the lowest level since January 6 touched last week.
The US Dollar stands tall near a multi-week high amid hawkish Fed expectations and turns out to be a key factor weighing on the AUD/USD pair. In fact, the markets seem convinced that the Fed will continue to raise interest rates and have been pricing in at least a 25 bps lift-off at the next two policy meetings in March and May. The bets were lifted by strong US PMI on Tuesday, which showed that business activity unexpectedly rebounded to an eight-month high in February.
The incoming robust US macro data points to an economy that remains resilient despite rising borrowing costs and supports prospects for further policy tightening by the Fed. Moreover, several FOMC members, including Fed Chair Jerome Powell, recently stressed the need to keep raising rates gradually to fully gain control of inflation. Hence, the market focus will remain glued to the release of the latest FOMC monetary policy meeting minutes, due later during the US session.
Investors will look for clues about the Fed’s rate-hiking path, which will drive the USD and provide a fresh directional impetus to the AUD/USD pair. In the meantime, looming recession risks, along with geopolitical tensions, further seem to act as a tailwind for the safe-haven buck and contribute to driving flows away from the risk-sensitive Aussie. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the major is to the downside.
