- AUD/USD regained positive traction and reversed a major part of Friday’s downfall.
- Stability in the financial markets benefitted the aussie amid modest USD weakness.
- Hawkish Fed expectations should act as a tailwind for the buck and cap the major.
The AUD/USD pair attracted some buying near the 0.6915 region on Monday and reversed a major part of its losses recorded on the last day of the previous week. The pair maintained its bid tone through the early part of the European session and was last seen trading near the daily high, just below the 0.7000 psychological mark.
The recent pullback in the US Treasury bond yields failed to assist the US dollar to capitalize on Friday's positive move, which, in turn, extended some support to the AUD/USD pair. Apart from this, signs of stability in the financial markets further undermined the greenback's safe-haven status and benefitted the risk-sensitive aussie. That said, a combination of factors might hold back bulls from placing aggressive bets and cap any meaningful upside for the major.
The markets seem convinced that the US central bank would stick to its policy tightening path to tame soaring inflation, which accelerated to the highest level since December 1981 in May. The bets were reaffirmed by the Fed's so-called dot plot, showing that the median projection for the federal funds rate stood at 3.4% for 2022 and 3.8% in 2023. Moreover, growing recession fears should continue to lend support to the USD and act as a headwind for the AUD/USD pair.
Investors remain concerned amid doubts that major central banks could hike interest rates without affecting global economic growth. This should keep a lid on any optimistic move in the markets and hold back traders from placing aggressive bullish bets around the AUD/USD pair. Traders now look forward to St. Louis Fed President James Bullard's public appearance for some impetus later during the US session amid absent relevant market-moving economic data from the US.
The focus would then shift to Reserve Bank of Australia RBA Governor Philip Lowe's speech during the Asian session on Tuesday. This, along with minutes from the latest RBA monetary policy meeting, will influence the Australian dollar and produce some meaningful trading opportunities around the AUD/USD pair.
Technical levels to watch
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