The Australian Dollar (AUD) tumbles sharply against the US Dollar (USD) as US Treasury yields climb and the Greenback (USD) posts solid gains of more than 0.50% via the US Dollar Index (DXY). Expectations that the US Federal Reserve (Fed) would cut rates in the year had been tempered, a headwind for the AUD/USD pair, which trades at 0.6596, down 0.93%. Risk appetite had deteriorated while US Treasury bond yields had risen as investors trimmed overaggressive bets that the Fed would ease monetary policy as soon as March.
The lack of economic data in the docket, except for the New York Fed Empire State Manufacturing Index for January plummeting sharply at -43.7 vs. estimates of -5, and December’s -14.5, casting doubts of a recovery in the manufacturing sector. For the latest month, the ISM Manufacturing PMI remained in contractionary territory for 14 consecutive months. Given the fundamental backdrop, the AUD/USD shifted neutral to slightly downwards, extending its losses and breaking support at the 50-day moving average (DMA) at 0.6629, putting into play a challenge of the 200-DMA at 0.6581. If sellers could decisively break the latter, expect additional selling pressure, which could cause prices to tumble towards December’s 7 low of 0.6525. On the other hand, if buyers defend the 200-DMA and reclaim 0.6600, that could pave the way to re-test the January 5 swing low seen at 0.6640.