AUD/USD drops to over one-week low, below mid-0.6600s amid broad-based USD strength

  • On Friday, there is strong selling pressure on the AUD/USD due to rising USD demand.
  • Resurgent recession fears lower investor confidence and strengthen the safe-haven dollar.
  • Traders are now looking for a new impetus in the US Durable Goods Orders and flash PMIs.

In the vicinity of the 0.6755–0.6760 range, which corresponds with a theoretically significant 200-day Simple Moving Average, the AUD/USD pair draws new sellers on Friday and extends the previous day’s rejection decline from over a two-week peak (SMA). The intraday decline, which is supported by rebounding US Dollar (USD) demand, pushes spot prices to a one-week high in the 0.6635 region during the first part of the European session.

In fact, despite a significant decline in the equity markets, the USD Index, which measures the value of the US dollar against a basket of other currencies, builds on the previous day’s impressive recovery from a seven-week low. The Eurozone and UK’s poor manufacturing PMI releases have rekindled concerns about the possibility of an impending recession. This in turn has an impact on the global risk mood, forcing investors to seek shelter in established safe-haven assets like the dollar.

This is a result of data that was released earlier on Friday, which showed that Australia’s private sector business activity once again contracted in February and drove flows away from the perceived riskier Australian. In reality, the services PMI came in at 48.2 during the reported month as opposed to 50.7 in February, and the manufacturing sector’s indicator fell to 48.7 in March from 50.7 the month before. In addition, the Composite PMI decreased from a final print of 50.6 in February to 48.1 in March.

This puts extra negative pressure on the AUD/USD pair together with the Reserve Bank of Australia’s (RBA) dovish signal, which suggests that a pause in the rate-hiking cycle may be in the works for next month. Yet it’s still unclear whether the USD bulls will be able to maintain their hegemonic position in the wake of the Fed’s less pessimistic outlook on Wednesday. In line with expectations, the US central bank increased interest rates by 25 basis points (bps), but expressed caution about the prospects in light of recent instability in the banking industry.

This results in a further drop in US Treasury bond yields and could act as a headwind for the US dollar, which should help, at least temporarily, to contain losses for the AUD/USD pair. The US economic calendar, which will include the publication of durable goods orders and flash PMI prints for March, is now anticipated by market participants. This will affect the USD price dynamics and present traders with short-term trading possibilities around the pair as we approach the weekend along with the general risk attitude.