AUD/USD descends to its lowest since April 2020 amid broad-based USD strength

• AUD/USD dives to its lowest level since April 2020 amid another blowout USD rally.
• Aggressive Fed rate hike bets, elevated US bond yields continue to boost the buck.
• The risk-off mood also contributes to driving flows away from the risk-sensitive aussie.

The AUD/USD pair comes under renewed selling pressure on Wednesday and slides below the 0.6400 mark for the first time since April 2020. The pair maintains its offered tone through the early European session and is currently placed around the 0.6370-0.6365 region, down over 1.0% for the day.

A combination of supporting factors lifts the US dollar to a fresh two-decade high, which, in turn, is seen exerting downward pressure on the AUD/USD pair. The overnight hawkish remarks by Fed officials reaffirm the prospects for a more aggressive policy tightening by the Fed and remain supportive of a further rise in the US Treasury bond yields. This, along with the risk-off mood, continues to underpin the safe-haven buck.

In fact, Minneapolis Fed President Neel Kashkari said on Tuesday that policymakers are determined to do what is needed to bring inflation down. Adding to this, Chicago Fed President Charles Evans noted that the US central bank will need to raise interest rates to a range between 4.50% and 4.75%. The yield on the benchmark 10-year US government bond shot to 4% for the first time since April 2010 following the comments.

Investors, meanwhile, remain worried that Fed policy will push the economy into recession. Apart from this, the risk of a further escalation in the Russia-Ukraine conflict continues to take its toll on the global risk sentiment. This is evident from a generally weaker tone around the equity markets, which is driving flows towards the greenback and contributing to the selling bias surrounding the risk-sensitive aussie.

With the latest leg down, the AUD/USD pair confirms this week's bearish breakdown through the lower end of a multi-month-old descending channel. A subsequent fall and acceptance below the 0.6400 mark might have already set the stage for an extension of the downward trajectory. Hence, some follow-through weakness towards testing the next relevant support, around the 0.6300 mark, remains a distinct possibility.

Technical levels to watch