• AUD/USD licks its wounds at multi-day low after falling the most in a month.
• RBA’s Lowe hints at a pause in rate hike after the central bank signalled peak in inflation.
• Fed’s Powell appears hawkish and bolstered case for 50 bp rate hike in March.
• Challenges to sentiment from China exert more downside pressure on Aussie price.

AUD/USD holds lower grounds near 0.6585-80, the lowest levels since early November 2022, showing little reaction to Reserve Bank of Australia (RBA) Governor Philip Lowe’s dovish remarks during early Wednesday. The reason could be linked to the previous day’s RBA statement that already revealed the dovish bias of the Aussie central bank, as well as the bear’s taking of a breather after posting the biggest daily slump in a month.

RBA’s Lowe said on Wednesday that it was closer to pausing its aggressive cycle of rate increases as the policy was now in the restrictive territory and there were signs the economy was responding.

Also read: RBA’s Lowe: Closer To Pausing On Rate Hikes

On Tuesday, RBA matched market forecasts of lifting the benchmark interest rate by 25 basis points (bps) to 3.60%. The Aussie central bank even said that the RBA expects further monetary tightening will be needed. However, the RBA Statement said that the Consumer Price Index (CPI) indicator hints at the inflation peak and seemed to have weighed on the AUD/USD prices upon the announcements.

More importantly, hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell in his Semi-Annual Testimony to the US Congress propelled the market’s risk-off mood, as well as the bets of a 50 bp Fed rate hike in March, which in turn drowned the AUD/USD prices.

It’s worth noting that the fresh US-China tensions are an extra burden for the risk-barometer pair helping in weighing on the price at the multi-day low. The anticipated meeting of the US and Taiwanese Officials could be cited as the key reason for the same. On the same line, China’s new Foreign Minister, Qin Gang, said that they resolutely oppose all forms of hegemony, cold war mentality. The same indirectly criticizes the US pressure and criticism for the China-Russia ties and escalated the fears of a fresh round of Sino-American tensions. Further, Financial Times (FT) headlines suggesting China’s lowest growth target in decades signals a new era of caution.

Amid these plays, Wall Street closed in the red and the US Treasury bond yields were firmer to underpin the US Dollar’s safe-haven demand, which in turn pleased the AUD/USD bears.

Looking ahead, the round of Fed Chair Jerome Powell and the US ADP Employment Change, the early signal for Friday’s US Nonfarm Payrolls (NFP) will be in focus. Also important to watch will be the risk catalysts surrounding China and the movements of the bond market.

Technical analysis

A clear downside break of a one-month-old descending support line, now immediate resistance around 0.6625, directs AUD/USD towards the October 2022 peak surrounding 0.6545.