- AUD/USD edged lower on Wednesday and was pressured by a combination of factors.
- Rising bets for an earlier Fed taper continued underpinning the USD and capped gains.
- COVID-19 jitters further weighed on the perceived riskier aussie ahead of the US CPI.
The AUD/USD pair remained on the defensive through the Asian session and was last seen trading with modest losses, around the 0.7335 region.
A combination of factors failed to assist the AUD/USD pair to capitalize on the previous day’s modest bounce from near three-week lows, instead exerted some downward pressure on Wednesday. The prospects for an early tapering of the Fed’s massive pandemic-era stimulus acted as a tailwind for the US dollar. This, along with COVID-19 jitters, weighed on the perceived riskier aussie and exerted some pressure on the major.
Investors now seem convinced that the Fed will begin tapering its $120 billion in monthly bond purchases amid signs of substantial further progress in the labour market recovery. The Fed officials have also started to guide the market towards early tapering and higher interest rates as soon as 2022. This was evident from the recent strong move up in the US Treasury bond yields and continued underpinning the greenback.
Meanwhile, investors remain worried about the potential economic fallout from the spread of the highly contagious Delta variant of the coronavirus. This, to a larger extent, overshadowed the optimism over the passage of a $1 trillion US infrastructure bill on Tuesday and continued weighing on investors sentiment. This was seen as another factor that benefitted the USD’s relative safe-haven status against its Australian counterpart.
Moving ahead, the focus now shifts to the release of the latest US consumer inflation figures later during the early North American session. A stronger print could further add pressure on the Fed to wind back policy support. This should be enough to provide an additional boost to the already stronger greenback, which, in turn, will be seen as a fresh trigger for bearish traders and set the stage for a further depreciating move for the AUD/USD pair.
Technical levels to watch