AUD/USD drops towards 0.7100 as RBA’s Lowe, risk-off mood joins stronger yields

• AUD/USD takes offers to refresh intraday low, extends pullback from three-week high.
• Multi-year high US inflation, upbeat Fedspeak propels yields on rate hike concerns.
• RBA’s Lowe keeps turning down hopes of rate hike in his testimony.
• Geopolitics/trade fears also favor sellers, US Michigan Consumer Sentiment Index will decorate calendar.

AUD/USD remains on the back foot for the second consecutive day by refreshing intraday low to 0.7132 during Friday’s Asian session. In doing so, the Aussie pair justifies multiple negatives to print the 0.35% daily loss at the latest.

Comments from Reserve Bank of Australia (RBA) Governor Philip Lowe can be cited as the biggest burden for the AUD/USD prices of late. Despite accepting the inflation fears and portraying cautious optimism over economic growth, RBA’s Lowe kept rejecting rate hike concerns during a testimony at a virtual hearing before the House of Representatives Standing Committee on Economics.

Read: RBA Lowe: Big deviation between what we expect to do on rates and what markets expect

Strong prints of the US Treasury yields and downbeat S&P 500 Futures also act as the key negative for the AUD/USD pair. That said, the US 10-year Treasury yields remain firmer around the highest levels since July 2019, up one basis point at 2.035%, whereas the S&P 500 Future drop 0.50% by the press time.

US bond coupons refreshed multi-day high the previous day after the US Consumer Price Index (CPI) for January rallied to a nearly five-decade high with a 7.5% YoY figure, versus 7.3% expected and 7.0% prior.

Also fueling the US T-bond yields are comments from the Fed policymakers. St. Louis Fed President James Bullard went a step farther while supporting 100 bps rate hikes by July and for the balance sheet reduction to start in the second quarter. Following that, Federal Reserve Bank of Richmond President Thomas Barkin said that the US economy will likely return past the pre-covid trend this quarter. Though, Fed’s Barkin wasn’t as hawkish as Bullard.

On a different page, US President Joe Biden confirmed the recent notice from the US Statement Department to all citizens to leave Ukraine right now during an interview with NBC News. Further, US-China trade tussles are also on the spike as Washington discusses sanctions for Beijing due to the Dragon nation’s failure to meet Phase 1 deal targets.

To sum up, AUD/USD has multiple reasons to extend the latest downside amid a light calendar in Asia. However, the preliminary readings of the US Michigan Consumer Sentiment Index for February, expected 67.5 versus 67.2 prior, may entertain the pair traders afterward.

Technical analysis

Having stepped back from the 100-DMA, around 0.7250 at the attest, AUD/USD prices battle a two-week-old support line near 0.7130.

Given the receding bullish bias of the MACD, coupled with the pullback from the key DMA, the pair is likely to extend recent losses towards the yearly bottom around 0.6965.