AUD/USD: Risks further downside despite holding 0.7700 after Powell-led losses

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  • AUD/USD remains pressured near weekly low, drops for third consecutive day.
  • Treasury yields soared even as Powell tried to ignore bond bears.
  • Fed Chair reiterated strong support to the central bank’s status-quo on monetary policy.
  • Italy blocks AstraZeneca’s Aussie vaccine supply, NFP in focus.

AUD/USD fails to keep the bounce off 0.7708, recently declining to 0.7720, while taking rounds to the weekly bottom during the initial Asian session on Friday. In doing so, the quote drops for the third day in a row as US Treasury yields stay firm around the fresh yearly top, marked after Fed Chair Jerome Powell’s latest speech.

Bonds aren’t the only problem…

AUD/USD dropped to the lowest since early Monday after Powell shrugged off a recent rally in Treasury yields but couldn’t convince markets. The Fed Chair said that they would be worried about “disorderly market conditions” while reiterating his “above 2.0% inflation” and “sustained employment” goals to trigger the change in the monetary policy.

Following his speech, US 10-year Treasury yields rallied above 1.50% while exerting downside pressure on the Wall Street benchmarks that closed Thursday below 1.0% each. The mood also favored the US dollar index (DXY) which jumped to the highest since December 01, 2020.

Not only the risk-off mood but Italy’s blockage of the AstraZeneca vaccine for Australia also weighs on the AUD/USD. Milan termed Aussie “non-vulnerable” under new EU controls to stop the recently cheered, by Australian PM Scott Morrison, vaccine arrival to Canberra.

It’s worth mentioning that the upbeat prints of Aussie Trade Balance and AiG Performance of Services Index couldn’t defy welcome US economics as markets are more concerned about February’s US employment report, up for publishing today at 13:30 GMT.

As Fed’s Powell followed ECB policymakers to turn down the fears of bond bears and the US stimulus is near to its passage, reflation risks are likely to keep the AUD/USD depressed during the pre-NFP trading lull.

Read: Nonfarm Payrolls Preview: Dollar booster? Three expectation downers pave way for upside surprise

Technical analysis

Despite breaking an ascending trend line from November 2020, AUD/USD bears need validation from 50-day EMA, near 0.7700, to retake the controls. Following that, February lows near 0.7560 should return to the chart.

 

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