Slightly improved risk sentiment gave no relief to AUD/USD longs on Tuesday, with potentially diverging RBA and Fed policies hinting at the possibility for further aussie losses.
RBA Deputy Guy Governor Debelle said the central bank is assessing various monetary policies such as currency intervention and negative rates to reach inflation and employment goals nL3N2GJ0PC.
The Fed is dealing with an economy that showed "marked improvement" but remains committed to using all tools available to ensure the recovery persists nL2N2GJ0K1.
Investors could be expecting the Fed to hold steady now due to upside economic data surprises.
The possibility of diverging policies is being reflected in yield spreads.
The 3-year Australian-U.S.
spread is at its tightest in three months, nearly erasing the aussie's yield advantage.
Risk reversals show vol premiums for AUD/USD puts over calls hit the widest since Sept 1.
Technicals highlight downside risks, with the 55-day moving average pierced, daily RSI falling and monthly RSI sinking after diverging on the high set earlier this month.
A test of 0.7065/80 support seems likely.
A break below that support could lead to tests of 0.7000/20 and 0.6965/80 supports.
For more click on FXBUZ