• AUD/USD attracted some dip-buying near the post-RBA swing low, around the 0.7030 area.
  • The ongoing USD retracement slide from the 18-month low extended support to the major.
  • The Fed’s hawkish stance, a softer risk tone helped limit the USD losses and capped the pair.

The USD selling picked up pace during the early part of the European session and pushed the AUD/USD pair to the 0.7100 neighbourhood, or a three-day high in the last hour.

The pair quickly reversed its intraday slide to the 0.7030 area and moved into the positive territory for the second successive day on Tuesday. The Reserve Bank of Australia (RBA) pushed back against market bets and indicated that it would be patient in terms of raising interest rates despite soaring inflation. This comes on the back of a larger than expected fall in Australian Retail Sales and exerted some pressure around the AUD/USD pair.

On the other hand, the US dollar added to the overnight heavy losses and moved further away from the 18-month high amid a fresh leg down in the US Treasury bond yields. This, in turn, assisted the AUD/USD pair to attract some dip-buying on Tuesday, though the uptick lacked bullish conviction. Expectations that the Fed will tighten its monetary policy at a faster pace than anticipated should help limit any meaningful slide for the greenback.

It is worth recalling that the markets seem convinced about an eventual Fed liftoff in March and have been pricing in the possibility of five quarter-point rate hikes by the end of 2022. Apart from this, a generally weaker tone around the equity markets extended some support to the safe-haven buck and kept a lid on any meaningful upside for the perceived riskier aussie. This warrants some caution for bullish traders and positioning for any further gains.

Nevertheless, the AUD/USD pair, so far, has struggled to make it through the 0.7090-0.7100 strong support breakpoint, now turned resistance. Market participants now look forward to the US economic docket, highlighting the release of ISM Manufacturing PMI. This, along with the US bond yields, will influence the USD and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

Technical levels to watch

This article was originally published by Fxstreet.com.Read the original article here.

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