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  • A modest pickup in the USD demand prompted some selling around AUD/USD on Tuesday.
  • The upbeat US economic outlook, a softer risk tone extended support to the safe-haven USD.
  • Sliding US bond yields capped the USD upside and helped limit losses for the major, for now.

The AUD/USD pair fell around 40 pips during the early European session and refreshed daily lows, around the 0.7625-20 region in the last hour.

The pair struggled to capitalize on the post-RBA uptick to one-week tops and faced rejection near the 0.7660-65 supply zone amid a modest pickup in the US dollar demand. The AUD/USD pair did get a minor lift earlier this Tuesday after the RBA left the cash rate unchanged at 0.1% and sounded a bit optimistic in the accompanying policy statement.

The supporting factor was offset by the emergence of some buying around the USD, which remained well supported by the upbeat US economic outlook. Investors remain optimistic about the prospects for a relatively faster US economic recovery amid the impressive pace of coronavirus vaccinations and the Biden administration’s infrastructure spending plan.

Apart from this, a softer tone surrounding the US equity futures further benefitted the safe-haven USD and drove flows away from the perceived riskier aussie. That said, the ongoing retracement slide in the US Treasury bond yields capped the upside for the USD and helped limit any further losses for the AUD/USD pair, at least for the time being.

Meanwhile, the reflation trade has been fueling speculations about an uptick in US inflation and raised doubts that the Fed will retain ultra-low interest rates for a longer period. This should limit any meaningful slide in the US bond yields and further underpin the greenback, supporting prospects for a further near-term weakness for the AUD/USD pair.

There isn’t any major market-moving economic data due for release on Tuesday. Hence, the US bond yields and the broader market risk sentiment will play a key role in influencing the USD price dynamics. This should allow traders to grab some short-term opportunities ahead of the key release of the FOMC monetary policy meeting minutes on Wednesday.

Technical levels to watch