AUD/USD fails to take advantage of modest intraday gains and fails before 0.6700

• AUD/USD fails to take advantage of its modest intraday rise to the 0.6700 zone.
• The ongoing recovery in US bond yields helps reignite demand for the USD and acts as a headwind.
• The RBA’s dovish bias continues to limit the upside ahead of Wednesday’s key Australian CPI report.

The AUD/USD pair regains some positive traction on Tuesday, but struggles to capitalize on the move, failing just before 0.6700. The pair, however, maintains modest intraday gains during the first half of the European session and currently trades around the 0.6670-0.6675 zone, up more than 0.35% on the day.

The receding fears of a full-blown banking crisis continue to support a generally positive risk tone, which, in turn, continues to weigh on the safe-haven dollar (USD) and benefits the risk-sensitive Australian dollar. The acquisition of Silicon Valley Bank by First Citizens Bank & Trust Company calmed market nerves at the risk of contagion. In addition, the reassurance by regulators that they were prepared to address any liquidity shortfalls helped reverse recent negative sentiment and boosted investor confidence.

This, coupled with the fact that the Federal Reserve has toned down its aggressive approach to reining in inflation, keeps USD bulls on the back foot and acts as a tailwind for AUD/USD. It should be remembered that the US central bank was cautious about the outlook, signaling last week that a pause in interest rate hikes was on the horizon. In addition, the Australian dollar is supported by domestic data, mostly online, which showed Retail Sales grew 0.2%m/m in February and indicated some economic resilience.

The aforementioned fundamental background supports the prospects for significant appreciation in the AUD/USD pair. That said, expectations that the Reserve Bank of Australia (RBA) will refrain from raising interest rates at its April policy meeting could discourage bulls from making aggressive bets or positioning themselves for higher rates. Profits. Traders are also looking reluctant and may prefer to stay on the sidelines ahead of the release of Australian consumer inflation figures due during the Asian session on Wednesday.

Meanwhile, the US economic calendar on Tuesday – with the Conference Board Consumer Confidence Index and the Richmond Manufacturing Index – could give the AUD/USD pair some momentum. This, along with US bond yields and broader risk sentiment, could weigh on the dollar and allow traders to take advantage of short-term trading opportunities. Next, attention will turn to the final fourth quarter US GDP data, due on Thursday, and the Fed’s preferred inflation gauge, the core PCE price index, due on Friday.

Technical levels to watch