• AUD/USD continues losing ground for the second straight day amid sustained USD buying.
• The Fed’s hawkish outlook pushes the US bond yields higher and underpins the greenback.
• The cautious market mood further benefits the buck and weighs on the risk-sensitive aussie.

The AUD/USD pair extends the previous day's post-FOMC retracement slide from the vicinity of the 0.6500 psychological mark and remains under some selling pressure for the second straight day on Thursday. The downfall drags spot prices below the 0.6300 mark, or a one-and-half-week low during the first half of the European session and is sponsored by broad-based USD strength.

The US dollar attracts aggressive buying following an early modest downtick and hits a nearly two-week high amid the prospects for further policy tightening by the Fed. Fed Chair Jerome Powell downplayed speculations for a dovish pivot and said on Wednesday that it was premature to discuss a pause in the rate-hiking cycle. Powell added that the terminal rate will still be higher than anticipated.

Investors now seem convinced that the US central bank will continue raising interest rates to combat inflation, which is reinforced by a sharp rise in the US Treasury bond yields. In fact, the yield on the rate-sensitive two-year US government bond momentarily climbs beyond 5.0% for the first time since May 2006. Moreover, the benchmark 10-year Treasury note holds comfortably above the 4.0% threshold.

This, along with the prevalent cautious mood, provides an additional boost to the safe-haven greenback and contributes to driving flows away from the risk-sensitive aussie. From a technical perspective, the overnight sustained weakness and close below the 0.6400 mark was seen as a fresh trigger for bearish traders. This could be cited as another factor behind the AUD/USD pair's ongoing downtrend.

Traders now look forward to the US economic docket, highlighting the ISM Services PMI. This, along with the US bond yields and the broader risk sentiment, might influence the USD price dynamics and provide some impetus to the AUD/USD pair. The focus will then turn to the release of the closely-watched US monthly employment report - popularly known as NFP on Friday.

Technical levels to watch