AUD/USD consolidates its recent slump to a near two-year low, remains below 0.6900 mark

• AUD/USD witnessed heavy follow-through selling on Friday and dived to a near two-year low.
• Aggressive Fed rate hike bets continued underpinning the USD and exerted downward pressure.
• Recession fears also benefitted the USD and drove flows away from the perceived riskier aussie.

The AUD/USD pair now seems to have entered a bearish consolidation phase and was seen oscillating in a range near its lowest level since June 2020, just below the 0.6900 mark.

Following the previous day's rather volatile price swings, the AUD/USD pair witnessed heavy selling on Thursday and was pressured by the underlying strong bullish sentiment surrounding the US dollar. Despite signs that inflationary pressures in the world's biggest economy are peaking, the markets seem convinced that the Fed would tighten its monetary policy at a faster pace. This, in turn, continued acting as a tailwind for the greenback and dragged spot prices lower.

In fact, money market futures are now pricing in an 81% chance of a jumbo 75 bps rate hike in June amid concerns that China's zero-covid policy and the war in Ukraine would continue to push consumer prices higher. The prospects for rapid interest rate hikes in the US, along with looming recession fears, weighed on investors' sentiment. This further benefitted the greenback's safe-haven status and contributed to driving flows away from the perceived riskier aussie.

The downward trajectory took along some short-term trading stops placed near the previous YTD low, around the 0.6910 region. The subsequent technical selling was seen as another factor that aggravated the bearish pressure and contributed to the AUD/USD pair's steep decline. That said, extremely oversold conditions on hourly charts held back bearish traders from placing fresh bets. Any meaningful recovery, however, seems elusive and runs the risk of fizzling out rather quickly.

Market participants now look forward to the US Producer Price Index (PPI), due for release later during the early North American session. The data, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

Technical levels to watch