- AUD/USD struggled to capitalize/preserve its modest gains to levels beyond the 0.7300 mark.
- Surging US bond yields pushed the USD to fresh one-month tops and prompted fresh selling.
- A cautious mood further weighed on the perceived riskier aussie and contributed to the slide.
The AUD/USD pair dropped nearly 50 pips during the early European session and refreshed daily lows, around the 0.7265 region in the last hour.
The pair continued with its struggle to find acceptance above the 0.7300 mark and once again witnessed a turnaround from the vicinity of the 0.7315-20 resistance zone on Tuesday. The US dollar tracked a sharp rise in the US Treasury bond yields and shot to the highest level since August 20. This, in turn, was seen as a key factor that acted as a headwind for the AUD/USD pair, instead prompted fresh selling at higher levels.
The US bond yields have been scaling higher after the Fed last week hinted that it will soon taper its asset purchases. Moreover, the so-called dot plot showed policymakers' inclination to raise interest rates in 2022. The repricing of the likely timing of the Fed's policy tightening pushed the yield on the benchmark 10-year US government bond to the highest level since June 17 and continued underpinning the greenback.
Apart from this, worries about China Evergrande Group's unsolved debt crisis weighed on investors' sentiment. This was evident from a cautious mood around the equity markets, which further benefitted the safe-haven greenback and drove flows away from the perceived riskier aussie. Despite the pullback, the AUD/USD pair, so far, has managed to hold within a multi-day-old trading range, warranting caution for bearish traders.
Hence, it will be prudent to wait for a strong follow-through buying before positioning for the resumption of the recent pullback from the 0.7475-80 region, or monthly tops touched on September 3. There isn't any major market-moving economic data due for release from the US on Tuesday, leaving the AUD/USD pair at the mercy of the USD. Apart from this, the broader market risk sentiment could also provide some impetus.
Later during the early North American session, traders will take cues from Fed Chair Jerome Powell's testimony before the Senate Banking Committee. This, along with the US bond yields, will influence the USD and produce some meaningful trading opportunities around the AUD/USD pair.
Technical levels to watch
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