- A nice pickup in USD demand caused some selling around AUD/USD on Tuesday.
- Aggressive Fed expectations and elevated US bond yields continued to act as a tailwind for the USD.
- Signs of stability in equity markets could help limit losses for the perceived riskier Australian dollar.
The pair AUD/USD it traded with a slight negative bias during the early American session and was last seen hovering just a few pips above the daily low around the 0.7115 area.
Having found some support before 0.7100, the AUD/USD pair attracted some intraday buying on Tuesday, although it struggled to capitalize on the move beyond the 0.7135-0.7140 zone. High US Treasury yields supported the US dollar, which, in turn, was seen as a key factor acting as a headwind for the pair.
Indeed, 2-year and 5-year US government bond yields held steady near the highest level since February 2020 and July 2019, respectively, amid expectations of further policy tightening. quickly by the Federal Reserve. Adding to this, the 10-year Treasury bond yield soared closer to 2% and provided an intraday boost to the dollar.
It is worth mentioning that investors now seem convinced that the Fed will respond more aggressively to combat high inflation and have been pricing in a 50bp rate hike in March. Therefore, the market’s focus will remain glued to the release of the US CPI report on Thursday, which could influence the Fed’s near-term policy outlook.
Meanwhile, signs of stability in equity markets could prevent traders from placing further bullish bets on the safe-haven dollar. This, in turn, should provide some support to the perceived riskier Aussie and help limit any significant declines for the AUD/USD pair amid a lack of market-moving economic data from the US.
Technical levels
Source: Fx Street
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