AUD/USD slides below 0.7400 mark amid broad-based USD strength

• The RBA’s decision on Tuesday to extend bond purchases weighed on the Australian dollar.
• Rallying US bond yields underpinned the USD and prompted fresh selling around AUD/USD.
• Sustained weakness below the 0.7400 mark might have set the stage for further weakness.

The AUD/USD pair continued losing ground through the mid-European session and dropped to three-day lows, further below the 0.7400 mark in the last hour.

The pair edged higher after the Reserve Bank of Australia on Tuesday moved ahead with the plan to taper its bond-buying to A$4 billion a week. However, an extension of the purchase period from November 2021 to February 2022 disappointed market participants. This, in turn, weighed on the Australian dollar and prompted some fresh selling around the AUD/USD pair.

On the other hand, a strong follow-through positive move in the US Treasury bond yields assisted the US dollar to recover further from one-month lows touched in reaction to dismal headline NFP print. In fact, the yield on the benchmark 10-year US government bond surged past 1.36% amid expectations that the Fed might still begin rolling back its pandemic-era stimulus in November.

The chances of the Fed announcing tapering at the September meeting faded following the release of the US monthly jobs report on Friday, which showed that the US economy added the fewest jobs in seven months. That said, additional details kept hopes alive for an imminent Fed taper announcement later this year and continued pushing the US bond yields higher.

With the latest leg down, the AUD/USD pair has now retreated around 75-80 pips from the daily swing highs, near the 0.7465-70 region. The downfall has been exclusively sponsored by a broad-based USD strength. Even the prevalent risk-on environment failed to impress bullish traders or lend any support to the perceived riskier aussie.

Meanwhile, an extension of the corrective pullback below the 0.7400 round-figure mark might have already set the stage for a further near-term depreciating move. In the absence of any major market-moving economic releases from the US, the US bond yields will play a key role in influencing the USD price dynamics and provide some impetus to the AUD/USD pair.

Technical levels to watch