Sharp Decline Continues

There was a continuous losing streak for the AUD/USD currency pair as it surrendered more ground in the early hours of the European session while it fell to a low point of two months in the vicinity of 0.7150 in an hour before this report.

AUD/USD price chart. Source TradingView

The currency pair prolonged the dwindling bearish momentum for the duration of the 200-period simple moving average, and it later saw a heavy series of sales for the third straight day in a row on Monday. The general expectation for an aggressive monetary policy fastening from the Federal Reserve, as well as the risk-off mood that has encompassed the market, has pumped the US dollar to a high of more than two years as a safe-haven asset. This became a major condition that kept on exerting more pressure on the pair of the sensitive Australian dollar and the US dollar.

All bets that the Federal Reserve was going to increase interest rates rapidly as a means of fighting exponential inflation have been confirmed by the Chairman of the Federal Reserve, Jerome Powell, in a statement on Thursday. As a matter of fact, Jerome Powell stated that the possibility of a 50 basis points increase in interest rates is firmly on the table against the next policy meeting of the Federal Open Market Committee in the month of May. He equally gave hints on the possibility of several interest rates before the end of this year.

The market has quickly priced in very high rate increases at four consecutive policy meetings of the reserve from May to September.

COVID and Risky Assets

The possibility of an upcoming rapid increase in interest rates, as well as an extended lockdown as a result of COVID in some Chinese cities, has increased the level of concern over sluggish growth in global economies and tamed investment appetite where risky assets are concerned. This then served to boost the market demands for conservative safe-asset commodities, which include the US dollar. Aside from that, a crash in the price of iron ore equally came together with other factors to divert funds from the resources-driven Australian dollar, which is perceived to be a riskier asset. 

With the most recent development, the AUD/USD currency pair is currently retreating more than 500 pips from its year-to-date high point in the realm of 0.7660 it reached in the early days of April. The present trajectory of decline looks sufficiently strong to pull down the prices of spots more in the direction of the 0.7100 benchmarks.