- AUD/USD struggled to capitalize on an RBA-inspired intraday rally.
- A softer risk tone and high US bond yields supported the dollar and capped gains.
- Market attention will continue to be focused on Friday’s US consumer inflation figures.
The pair AUD/USD underwent an intraday turnaround from near the 0.7200 area and fell into negative territory for the third day in a row on Tuesday. The bearish trajectory extended throughout the early American session and dragged the pair to a three-day low around the 0.7155 region in the last hour.
The Australian dollar strengthened after the Reserve Bank of Australia (RBA) hiked interest rates by 0.50% (higher than expected) on Tuesday and indicated further tightening is in the works. The initial market reaction, however, turned out to be short-lived amid prevailing bullish sentiment around the US dollar.
Expectations that more aggressive action by major central banks to curb inflation could challenge global economic growth continued to weigh on investor sentiment. This was reflected in the weaker tone in equity markets, which, together with high yields on US Treasuries, underpinned the safe-haven dollar.
Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war will drive consumer prices higher. This could force the US central bank to tighten its monetary policy at a faster pace, which, in turn, helped the benchmark 10-year US government bond yield remain stable. above the 3% threshold.
Therefore, the market’s attention will remain focused on the latest US consumer inflation figures, due to be published on Friday. The US CPI report could influence the Fed’s tightening path and the dollar’s price dynamics. This, in turn, would give a further boost to the AUD/USD pair and help determine the next leg of a directional move.
Meanwhile, US bond yields will continue to play a key role in driving dollar demand amid the absence of top-tier US economic data on Tuesday. Aside from this, traders will take signals from the broader market risk to take advantage of short-term opportunities around the AUD/USD pair.
Technical levels
Source: Fx Street
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