AUD/USD dropped to two-week lows in reaction to the RBA Governor Lowe’s comments.
The set-up favours bearish traders and supports prospects for a further depreciating move.
A sustained move beyond the 0.7400 round figure is needed to negate the negative outlook.
The AUD/USD pair struggled to capitalize on the previous day’s modest recovery gains, instead met with some fresh supply on Tuesday and dropped to two-week lows during the early European session.
The Reserve Bank of Australia Governor Philip Lowe downplayed speculations for an early rate hike and highlighted the downside risks associated with the recent spread of the Delta variant. This, in turn, was seen as a key factor that weighed on the Australian dollar and exerted downward pressure on the AUD/USD pair.
However, the underlying bullish sentiment in the financial markets extended some support to the perceived riskier aussie. Apart from this, some follow-through US dollar pullback from two-week tops touched in the previous session acted as a tailwind for the AUD/USD pair and helped limit losses, at least for now.
From a technical perspective, the AUD/USD pair, so far, has managed to defend confluence support comprising of 200-period SMA on the 4-hour chart and the 38.2% Fibonacci level of the 0.7106-0.7478 strong rally. This should now act as a key pivotal point as the focus remains on the US consumer inflation figures.
Meanwhile, technical indicators on hourly charts are holding deep in the negative territory but are yet to confirm a bearish bias on the daily chart. This makes it prudent to wait for sustained weakness below the mentioned confluence support before traders start positioning for an extension of the recent depreciating move.
The next relevant support is pegged near the 50% Fibo. level, just below the 0.7300 mark. Some follow-through selling will be seen as a fresh trigger for bearish traders and turn the AUD/USD pair vulnerable to accelerate the slide towards mid-0.7200s en-route the 0.7230-25 support and the 0.7200 round-figure mark.
On the flip side, any attempted recovery now seems to confront immediate resistance near the overnight swing highs, around the 0.7375 region, nearing the 23.6% Fibo. level. This is closely followed by the 0.7400 mark, which if cleared decisively would set the stage for a move towards retesting monthly tops, around the 0.7475-80 region.