• Stronger Australian CPI figures assisted AUD/USD to gain some traction during the Asian session.
  • The risk-off mood, rebounding US bond yields underpinned the safe-haven USD and capped gains.
  • The technical set-up favours bearish traders and supports prospects for additional near-term losses.

The AUD/USD pair witnessed heavy selling for the second successive day on Monday and dropped to over a one-month low, though showed some resilience below the 0.7100 mark. The US dollar made a solid comeback on the first day of a new week and continued drawing support from growing acceptance that the Fed will tighten its policy at a faster pace than anticipated. Apart from this, rising geopolitical risk over Ukraine further benefitted the greenback's safe-haven status and drove flows away from the perceived riskier aussie.

That said, a strong late rebound in the US equity markets kept a lid on any additional gains for the buck and assisted the pair to bounce over 50 pips from the daily low. The recovery momentum extended through the early part of the Asian session on Tuesday and was further fueled by hotter-than-expected Australian consumer inflation figures. In fact, the headline CPI rose 1.3% during the fourth quarter, pushing the yearly rate to 3.5%.

Adding to this, the core CPI surpassed the midpoint of the Reserve Bank of Australia's 2-3% target for the first time since June 2014 and lifted expectations for an earlier interest rate hike. This, in turn, provided a goodish lift to the major, though the momentum ran out of steam near the 0.7175 region. The risk-off mood, along with rebounding US Treasury bond yields, acted as a tailwind for the buck and attracted fresh selling around the major.

Market participants now look forward to the release of the Conference Board's US Consumer Confidence Index for a fresh impetus later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD and produce some trading opportunities. The focus, however, will remain on the outcome of a two-day FOMC policy meeting, scheduled to be announced on Wednesday.

Technical outlook

From a technical perspective, the overnight slide validated last week’s bearish break below ascending trend-channel support extending from the 2021 low. Moreover, the emergence of fresh selling at higher levels favours bearish traders and supports prospects for an extension of the recent rejection slide from the 100-day SMA resistance. Sustained weakness below the 0.7100 mark will reaffirm the negative bias and turn the pair vulnerable to test the 0.7060-0.7050 intermediate support. The downward trajectory could eventually drag spot prices back towards challenging the key 0.7000 psychological mark.

On the flip side, the daily swing high, around the 0.7175 region, nears the ascending channel support breakpoint and should now act as immediate strong resistance. This is closely followed by the 0.7200 mark, above which the pair could test the 0.7225 supply zone. Some follow-through buying will negate the bearish outlook and allow bulls to make a fresh attempt to clear the 100-day SMA barrier, currently around the 0.7270 region. The next relevant hurdle is pegged near the 0.7300 mark ahead of the monthly high, around the 0.7315 region touched on January 13.

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