- AUD/USD regained positive traction on Monday, although the rally lacked bullish conviction.
- Aggressive Fed expectations, Ukraine crisis underpinned safe haven USD and capped gains.
- Investors also seemed reluctant to make directional bets ahead of Tuesday’s RBA decision.
The pair AUD/USD it maintained its tone offered earlier in the North American session and was last seen near the daily high just above 0.7500.
The pair attracted fresh buying on Monday and again approached the upper end of a nearly two-week trading range, although the rally lacked bullish conviction. Uncertainty over Ukraine continued to act as a tailwind for commodity prices, which in turn provided some support for the resource-linked Aussie.
In the latest developments, Ukraine accused Russian forces of carrying out a massacre in the city of Bucha. This prompted German Defense Minister Christine Lambrecht to say that the European Union should talk about ending Russian gas imports. In addition, Germany and France said a new round of sanctions against Russia was needed.
This is due to the lack of progress in the peace negotiations between Russia and Ukraine, which moderated investors’ appetite for assets perceived as riskier. Aside from this, expectations that the Fed would adopt a more aggressive response to combat high inflation underpinned the US dollar and capped gains from the perceived riskier Australian dollar.
Markets have been pricing in a 100bp Fed rate hike move over the next two meetings. Therefore, the focus will remain glued to the FOMC meeting minutes, due for release on Wednesday. Investors will be looking for further clues on the pace of policy tightening by the US central bank, which, in turn, will boost USD demand.
Meanwhile, traders also seemed reluctant to make aggressive bets, preferring to wait on the sidelines ahead of the Reserve Bank of Australia (RBA) policy decision on Tuesday. This makes it prudent to wait for some follow-up buying before positioning for an extension of the recent strong uptrend from the yearly low.
Technical levels
Source: Fx Street
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