- AUD/USD witnessed a modest intraday pullback from the new yearly high hit on Wednesday.
- Fed hawkish outlook, high US bond yields underpinned USD and capped upside.
- The crisis between Russia and Ukraine weighed on investor sentiment and also benefited the safe-haven dollar.
- Upward pressure on commodity prices helped limit deeper losses for the Australian dollar.
The pair AUD/USD remained on the defensive during the early days of the American session and was last seen near the daily low around 0.7450.
The pair witnessed a modest retracement from the 0.7480 zone or the highest level since early November 2021 hit earlier this Wednesday and parried some of the previous day’s strong gains. The recent rally in US Treasury yields, fueled by the Fed’s dovish outlook, acted as a tailwind for the US dollar. This, in turn, was seen as a key factor that acted as a headwind for the AUD/USD pair.
It’s worth remembering that last week, the Fed indicated that it could raise rates at the remaining six meetings in 2022. In addition, Fed Chairman Jerome Powell suggested that the US central bank could adopt a response more aggressive policy to combat stubbornly high inflation. This, in turn, pushed the benchmark 10-year US government bond yield to the highest level since 2019 earlier on Wednesday.
Aside from this, the modest pullback in equity markets fueled some safe-haven flows into the dollar and weighed on the perceived riskier Aussie. The lack of progress in the Russia-Ukraine peace talks kept investors on edge and benefited the safe-haven dollar. Russian Foreign Minister Sergei Lavrov said talks with Ukraine are difficult as kyiv is constantly changing positions.
On the other hand, the Prime Minister of Italy, Mario Draghi, pointed out that Russia shows no interest in a truce for the success of the peace talks. This, in turn, moderated investors’ appetite for riskier assets and put some downward pressure on the AUD/USD pair. However, the decline remains cushioned by rising commodity prices, which continued to provide some support to the Australian dollar.
Indeed, commodity prices have faced upward pressure amid concerns about global supply chain disruptions following Russia’s invasion of Ukraine and the imposition of new COVID-19 restrictions on China. This, in turn, warrants some caution before confirming that the AUD/USD has topped out in the near term and is positioning for any significant corrective declines amid the lack of economic releases.
Technical levels
Source: Fx Street
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