AUD/USD clings to modest recovery gains, lacks follow-through

The AUD/USD pair failed to capitalize on its Asian session recovery move from fresh three-week lows and remained well below the 0.6900 round-figure mark.

The pair added to the previous session's heavy losses and lost some additional ground during the early part of Wednesday's trading action on the back of the latest escalation of geopolitical tensions in the Middle East.

Geopolitical tensions might cap the upside

Iran – in retaliation to the US drone strike last week – fired more than a dozen ballistic missiles on US-led forces in Iraq. This triggered a fresh wave of the global risk-aversion and weighed on perceived riskier currencies – like the Aussie.

The pair dropped to mid-0.6800s – the lowest level since December 19 – but managed to find some support in reaction to the US President Donald Trump’s refrained response to the strikes, which helped ease market concerns.

Adding to this, Iranian Foreign Minister Javad Zarif also said that the strike against US forces was “proportionate” and in “self-defense”. He further added that Iran does not seek an escalation of war and led to a modest recovery in the risk sentiment.

Despite the calm, markets are still leaning more towards a defensive posture and the same was evident from the prevalent bid tone surrounding traditional safe-haven assets, which eventually kept a lid on any further recovery for the major.

As investors keep a close eye on geopolitical developments, Wednesday's release of the US ADP report on private-sector employment might influence the US dollar price dynamics and will be looked upon for some short-term trading opportunities.

Technical levels to watch