AUDUSD remains defensive below the 100-day SMA and 0.6700

• AUDUSD remains on the defensive amid a modest USD rebound from a nearly three-month low.
• Aggressive comments from the Fed’s Waller push up US bond yields and revive demand for the dollar.
• Expectations for lower rate hikes by the Fed act as a headwind for the dollar and limit the pair’s losses.

The pair AUDUSD fails to capitalize on its modest intraday rebound from the 0.6665 area and remains on the defensive during the first half of the European session. The pair is currently trading around the 0.6685-0.6680with the bulls still waiting for sustained strength beyond the 100-day SMA resistance.

A combination of factors helps the US dollar gain some positive traction on the first day of a new week, which in turn acts as a headwind for the AUDUSD pair. US Treasury bond yields rise in reaction to Stronger comments from Fed Governor Christopher Waller, on Sunday. This, coupled with a softer tone around equity markets, benefits the safe-haven dollar, and puts some downward pressure on the risk-sensitive Aussie.

During a conversation in Sydney, Australia, Waller noted that markets have overreacted to last week’s data on consumer price inflation for October, which was softer than expected. Waller added that the Fed wasn’t easing its fight against inflation and that it will take a series of soft CPI reports for the US central bank to take its foot off the brake. That said, expectations that the Fed will slow the pace of its policy tightening appear to have capped the dollar.

Also, Optimism about an eventual easing of China’s COVID-19 measures offers Australian dollar support and limits the losses of the AUDUSD pair. Therefore, the moderate price movement could be categorized as a bullish consolidation phase, suggesting that any corrective pullback could still be viewed as a buying opportunity. This, in turn, justifies bears’ caution in the absence of market-relevant economic releases from the US.

Technical levels to watch