• AUD/USD met with a fresh supply on Thursday and eroded a major part of the overnight gains.
• The prospects for a further tightening by the Fed revived the USD demand and exerted pressure.
• Concerns about the latest COVID-19 outbreak in China further undermined the Australian dollar.

The AUD/USD pair extended its steady intraday descent through the early North American session and fell to a fresh daily low, around the 0.7165-0.7160 region in the last hour.

Having struggled to move back above the 100-day SMA, the AUD/USD pair met with a fresh supply on Thursday and snapped a two-day winning streak to a near two-week high. A combination of supporting factors assisted the US dollar to make a solid comeback and reversed the previous day's post-FOMC slump. This, in turn, was seen as a key factor that exerted downward pressure on the major.

Fed Chair Jerome Powell on Wednesday downplayed the possibility of a more aggressive policy tightening, though stated that policymakers were ready to approve 50 bps rate hikes at upcoming meetings. Moreover, the markets are pricing in a further 200 bps rate hike for the rest of 2022. This was evident from a fresh leg up in the US Treasury bond yields, which helped revive the USD demand.

This, along with concerns about rising COVID-19 cases and strict lockdowns in China, further benefitted the safe-haven buck, which seemed rather unaffected by a rise in the US Initial Jobless Claims. On the other hand, the disappointing release of China's Caixin Services PMI, along with softer Australian trade data, also contributed to driving flows away from the China-proxy aussie.

It would now be interesting to see if the AUD/USD pair is able to attract any buying at lower levels or prolongs the intraday rejection slide from a technically significant moving average. Some follow-through selling would suggest that this week's bounce from a three-month has run its course and set the stage for the resumption of the prior downtrend witnessed over the past one month or so.

Technical levels to watch