• AUD/USD meets with aggressive supply and dives to its lowest level since April 2020.
• The USD strengthens across the board on stronger US CPI report and exerts pressure.
• The risk-off mood also contributes to driving flows away from the risk-sensitive aussie.

The AUD/USD pair comes under intense selling pressure during the early North American session and dives to its lowest level since April 2020 in reaction to stronger US consumer inflation figures.

In fact, the US Bureau of Labor Statistics reported that the headline CPI rose 0.4% MoM (0.2% expected) and the yearly rate eased to 8.2% from 8.3% in August, though was still higher than the 8.1% estimated. Adding to this, core inflation, which excludes food and energy prices, holds steady at 0.6% during the reported month and accelerates from 6.3% to 6.6% YoY - the highest since August 1982.

This comes on the back of more hawkish cues from the FOMC minutes released on Wednesday and lifts bets for a more aggressive policy tightening by the Fed. In fact, the markets have now started pricing in a small possibility of a 100 bps Fed rate hike move in November. This, in turn, pushes the yield on the benchmark US Treasury note beyond the 4.0% threshold and boosts the greenback.

Apart from this, a fresh wave of the global risk sentiment - as depicted by another round of a sell-off in the equity markets - underpins the safe-haven buck and weighs on the risk-sensitive aussie. Apart from this, technical selling below the previous YTD low, around the 0.6235 region, further aggravated the bearish pressure surrounding the AUD/USD pair and contributes to the steep decline.

That said, slightly oversold conditions on intraday charts hold back bearish traders from placing fresh bets and limit the downside for the AUD/USD pair, at least for the time being. Nevertheless, the fundamental backdrop suggests that any attempted recovery might be seen as a selling opportunity and runs the risk of fizzling out rather quickly amid looming recession risks.

Technical levels to watch