- AUD/USD attracts some buying on Tuesday and turns positive for the second day in a row.
- Rising expectations for a possible RBA rate hike turns out to be a key factor supporting AUD.
- Risk-off in the markets limits any significant gains amid a nice rally in USD demand.
The pair AUD/USD has retraced a few pips from the daily high but is holding with modest gains above the 0.7200 level during Tuesday’s European session.
The pair caught some buying near the 0.7170 zone on Tuesday and turned positive for the second day in a row, though risk-off sentiment capped gains for the perceived riskier Australian dollar. Global risk sentiment was hit amid a further escalation of tensions between Russia and the West over Ukraine.
the russian president Vladimir Putin formally recognized two breakaway regions – Donetsk and Luhansk – in eastern Ukraine as independent entities and ordered troops into the area to keep the peace.. This, in turn, fueled fears of impending war and triggered a new wave of risk aversion.
The latest geopolitical events hopes of a more aggressive policy response from the Fed to combat stubbornly high inflation may have been dashed. This, coupled with the flow of risk aversion currency, led to a sharp decline in US Treasury yields and capped any significant gains for the US dollar.
On the other hand, rising expectations of a possible rate hike by the Reserve Bank of Australia (RBA) acted as a tailwind for the AUD. The fundamental backdrop supports the prospects for further gains for the AUD/USD pair, although the lack of continuation buying warrants some caution among investors.
Market participants now await the release of the US Flash PMI later at the start of the American session. However, the focus will be on the developments surrounding the situation in Ukraine, which will influence the demand for the USD and provide some momentum to the AUD/USD pair.
AUD/USD technical levels
Source: Fx Street
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