- AUD/USD gains traction for the second day in a row and recovers from a six-week low.
- Pullback in US bond yields and risk boost weigh on the dollar and offer support for the pair.
- Aggressive bets on Fed rate hikes should limit deeper USD losses and keep the pair contained.
The pair AUD/USD attracts some buying on the dips near the 0.6875 area on Tuesday and turns positive for the second day in a row. The momentum allows the pair to recover further from six-week lows hit on Monday and rally as high as 0.6950 during the first half of the European session, amid the onset of fresh US dollar selling.
A further decline in US Treasury yields turns out to be a key factor pulling the dollar back from 20-year highs hit the previous day. Aside from this, the risk boost – as evidenced by the sharp rally in equity markets – further underpins the safe-haven dollar and benefits the risk-sensitive Aussie.
Chinese authorities pledged to stimulate the world’s second largest economy and boosted investor confidence. However, growing concerns about the deepening global economic recession could dampen any upbeat movement in the markets. On the other hand, the Fed’s aggressive expectations should limit dollar losses and cap the AUD/USD pair.
Markets seem convinced that the Federal Reserve will maintain its aggressive monetary policy tightening and have been pricing in a 75 basis point rate hike at the September FOMC meeting. Bets were bolstered by Fed Chairman Jerome Powell’s remarks on Friday that he said interest rates would stay higher longer to reduce inflation.
The fundamental backdrop favors dollar bulls and warrants some caution before positioning for any further appreciation moves for the AUD/USD pair. Going forward, traders expect the US economic docket – with JOLTS job openings and the Conference Board’s consumer confidence index – to pick up fresh momentum.
The data, along with US bond yields, will influence the dynamics of the dollar price. Apart from this, the general market risk sentiment could contribute to producing short-term trading opportunities around the AUD/USD pair. However, the focus remains on the monthly US employment report (NFP), due out on Friday.
Technical levels
Source: Fx Street
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