- A combination of factors prompted some intraday selling around AUD/USD on Tuesday.
- Resurgent USD demand acted as a headwind for the pair amid the prevalent cautious mood.
- The lack of follow-through selling below mid-0.7200s warrants caution for bearish traders.
The AUD/USD pair quickly recovered around 25 pips from the daily lows touched in the last hour and was last seen trading in the neutral territory, around the 0.7275-80 region.
Having struggled to find acceptance above the 0.7300 mark, the AUD/USD pair came under renewed selling pressure on Tuesday and was weighed down by a combination of factors. The US dollar attracted some fresh buying and moved well within the striking distance of one-year tops. Apart from this, the prevalent cautious mood further undermined the perceived riskier aussie.
The USD continued drawing support from firming expectations that the Fed would begin rolling back its massive pandemic-era stimulus as soon as November. The markets also seem to have started pricing in the prospects for a rate hike in 2022. This, along with an uptick in the US Treasury bond yields, underpinned the greenback and exerted pressure on the AUD/USD pair.
Meanwhile, worries that the continuous surge in crude oil/energy prices will stoke inflation and derail the global economic recovery tempered investors' appetite for perceived riskier assets. This was evident from a generally weaker sentiment around the equity markets, which further benefitted the greenback's safe-haven status and acted as a headwind for the AUD/USD pair.
Earlier this Tuesday, the Reserve Bank of Australia (RBA) left the official cash rate unchanged at a record low of 0.10%. In the accompanying statement, the RBA Governor Philip Lowe reiterated that the bank will leave interest rates intact until the inflation rises sustainably within the 2-3% target range and did little to provide any impetus to the AUD/USD pair.
Despite the bearish fundamental backdrop, the AUD/USD pair showed some resilience below mid-0.7200s. This, in turn, makes it prudent to wait for a strong follow-through selling below the mentioned level before positioning for the resumption of the recent bearish trajectory from September monthly swing highs, around the 0.7475-80 region.
Market participants now look forward to the US economic docket, highlighting the release of ISM Services PMI. Apart from this, the US bond yields and a scheduled speech by Fed Governor Randal Quarles might influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment for some short-term opportunities around the AUD/USD pair.
Technical levels to watch
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