AUD/USD consolidates in a range below mid-0.7800s ahead of Australia’s federal budget

The AUD/USD pair held on to its modest gains heading into the European session, albeit lacked follow-through and remained below mid-0.7800s.

The pair regained some positive traction during the first half of the trading action on Tuesday and recovered a part of the overnight pullback from the 0.7900 neighbourhood, or the highest level since February 25. The recent surge in commodity prices turned out to be a key factor that continued underpinning the aussie ahead of Australia’s federal budget. That said, a combination of factors held bulls from placing aggressive bets and capped the upside for the AUD/USD pair.

As investors looked past Friday's dismal US monthly jobs report, a slight rebound in the US Treasury bond yields extended some support to the US dollar. Apart from this, a turnaround in the global risk sentiment – as depicted by a negative tone around the equity markets – allowed the safe-haven USD to build on Monday's rebound from two-and-half-month lows. This, in turn, was seen as another factor that kept a lid on any meaningful upside for the AUD/USD pair, at least for now.

This comes on the back of strained relations between China and Australia, which further seemed to act as a headwind for the Australian dollar. From a technical perspective, acceptance above the 0.7815-20 heavy supply zone still favours bullish traders and supports prospects for an extension of the recent appreciating move. In the absence of any major market-moving economic releases from the US, a subsequent strength beyond the 0.7900 mark, en-route the next major hurdle near the 0.7965-70 region, remains a distinct possibility.

Technical levels to watch