AUD/USD is facing mounting downside risks, having fallen to a four-week low on Monday amid pressures from global bond yields and weakening technical signals.

Central banks worldwide are adopting an increasingly hawkish stance to combat inflation. Notably, the ECB raised rates last week, and markets have increased the odds that the Fed, RBA, and BOJ will follow suit with hikes at their September meetings. This hawkish shift has fueled a broad rally in global bond yields, driven not only by rate hike expectations but also by growing government deficits and increased bond issuance.

The rise in yields and rates poses a threat to global economic growth, potentially pushing some already-struggling economies toward contraction. Given the Australian economy's heavy reliance on global growth, a persistent rise in the global interest rate complex would likely weigh on its outlook. This anticipated slowdown, combined with expectations that the RBA may eventually need to pivot to a more dovish stance, is currently pressuring AUD/USD.

Technically, the picture has turned bearish. The pair trades below both its 10- and 21-day moving averages, and has broken below the 23.6% Fibonacci retracement of the 0.6867-0.7238 rally. Both daily and monthly RSI readings point to downward momentum, while a bearish inverted hammer candle for September reinforces the negative outlook.

Should these bearish forces continue, AUD/USD could test the 0.6980-0.7010 zone, a confluence area containing the 61.8% Fibonacci retracement, the 200-day moving average, and August's monthly low. A break below this support zone would bring the 0.6825/50 level into focus as the next downside target.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)