Diverging interest rate expectations between the U.S. and Australia could open the way for the AUD/USD to test its 2022 low at 0.6170 in the weeks ahead.

The Reserve Bank of Australia indicated itsrate tightening cycle may be close to ending following Tuesday's 25 basis-point rate hike to 3.60%. RBA Governor Philip Lowe reinforced this view in a speech early Wednesday, stating that monetary policy is now in restrictive territory and nearing the point where a pause may be appropriate.

Federal Reserve Chair Jerome Powell delivered an entirely different outlook in Congressional testimony Tuesday.
The Fed Chair opened the door to a 50 bps rate hike at the March 21-22 meeting and indicated a higher terminal rate was needed. The CME FedWatch Tool implies the market is pricing nearly a 70% chance of a 50 bps hike in March and around a 60% chance the target rate will be above 5.50% by year-end.

A strong U.S. jobs report on Friday would force the market to fully price in a 50 bps rise this month and spark speculation of a terminal rate close to 6.0%.

Risk assets will likely remain under extreme pressure, adding to bearish sentiment towards risk currencies such as the Australian dollar.

AUD/USD support is at the 61.8 Fibonacci retracement of the October-February rise at 0.6547. A close below that level opens the way for a complete retracement to the Oct 13 low at 0.6170.

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