AUD/USD slides to five week lows, risks breaking below 0.7200 amid stronger USD

• AUD/USD turned lower for the second successive day amid a broad-based USD strength.
• Break below the 0.7220 horizontal support has already set the stage for further weakness.
• Investors now look forward to the US data/Powell’s remarks for a fresh trading impetus.

The AUD/USD pair dropped to over one-month lows during the early North American session, with bears now eyeing a sustained break below the 0.7200 mark.

The pair struggled to capitalize on its modest intraday uptick, instead met with some fresh supply on Wednesday and extended the previous day's retracement slide from the 0.7310-15 resistance zone. This marked the second successive day of a negative move and was sponsored by a strong bullish sentiment surrounding the US dollar.

In fact, the key USD Index shot to the 94.00 neighbourhood, or the highest level since November 2020 and was supported by a combination of factors. The intensifying energy crisis in China resurfaced fears of a global economic slowdown, which, in turn, benefitted the greenback's status as the global reserve currency.

Apart from this, prospects for an early policy tightening by the Fed further acted as a tailwind for the greenback. This, to a larger extent, helped offset the looming US debt ceiling and a modest pullback in the US Treasury bond yields. The USD bulls also seemed unaffected by a generally positive tone around the equity markets.

With the latest leg down, the AUD/USD pair now seems to have confirmed a bearish break through the 0.7220 strong horizontal support. A subsequent fall below the 0.7200 mark will reaffirm the negative bias and pave the way for further losses. Bears might then aim back to challenge YTD lows, around the 0.7100 mark touched in August.

Market participants now look forward to the release of Pending Home Sales data. The focus, however, will remain on Fed Chair Jerome Powell's remarks at the ECB Forum on Central Banking. This, along with the US bond yields and the broader market risk sentiment, might influence the USD and provide some impetus to the AUD/USD pair.

Technical levels to watch