- AUD/USD gains positive traction on Wednesday, although it lacks continuation buying.
- Peace hopes in Ukraine cap commodity prices and weigh on AUD.
- Risk appetite and a pullback in US bond yields weigh on the USD.
The pair AUD/USD has given back its early gains and retraced to the lower end of its daily range during the European session on Wednesday. At time of writing, the pair trades at 0.7513, up 0.05% on the day.
The Optimism about the possibility of a breakthrough in the peace negotiations between Russia and Ukraine limited the recent rise in commodity prices. This, in turn, was seen as a key factor acting as a headwind for the Australian dollar, a currency linked to commodity prices, although widespread US dollar weakness continued to support the AUD/USD pair.
The flow of positive news from the previous day around the war between Russia and Ukraine increased investor confidence and dragged the safe-haven USD to one-week lows. In fact, Russia said it would scale back military operations around the Ukrainian capital and north. In addition, kyiv proposed to adopt a neutral status, which raised hopes for a diplomatic solution to end the war.
Apart of this, the sharp pullback drop in US Treasury yields was seen as another factor weighing on the USD. That said, strong expectations that the Fed would raise rates by 50 basis points in the next two meetings to combat stubbornly high inflation should offer some support to US bond yields and limit dollar losses.
The fundamental backdrop, coupled with the AUD/USD’s inability to capitalize on the recent strong move higher, could be seen as the first sign of bullish exhaustion.. However, it will be wise to wait for some continuation selling below the previous day’s low around 0.7450 before confirming that the pair has reached a top and positioning for any further decline.
Market participants now await the US economic calendar, which includes the release of the ADP report on private sector employment and the final fourth quarter GDP figure. This, along with US bond yields, could weigh on the dollar. Investors will take more cues from the developments around the Russia-Ukraine war to take advantage of some short-term opportunities around the AUD/USD pair.
AUD/USD technical levels
Source: Fx Street
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