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  • Sustained USD selling assisted AUD/USD to gain traction for the second consecutive day.
  • Dovish Fed expectations, sliding US bond yields, the risk-on mood all undermined the USD.
  • The lack of any strong follow-through buying warrant caution for aggressive bullish traders.

The AUD/USD pair traded with a positive bias through the first half of the European session, albeit has retreated around 15 pips from daily swing highs. The pair was last seen hovering near the 0.7760 region, still up around 0.15% for the day.  

The pair built on the previous day’s goodish rebound from the vicinity of the 0.7700 mark, or over one-week lows and gained follow-through traction for the second consecutive session on Tuesday. The US dollar tumbled to the lowest level since January, which, in turn, was seen as a key factor driving the AUD/USD pair higher.

Fears about runaway inflation in the US eased after the White House pared down the infrastructure bill to $1.7 trillion from $2.25 trillion. This bodes well with the Fed’s stubbornly dovish view, which forced investors to trim their bets over inflation-driven rate hike and acted as a headwind for the greenback.

The USD was further pressured by an extension of the recent downfall in the US Treasury bond yields. Apart from this, the prevalent bullish sentiment – as depicted by the ongoing rally in the global equity markets further undermined the safe-haven greenback and provided an additional boost to the perceived riskier aussie.

Despite the supporting factors, the uptick lacked strong bullish conviction and the AUD/USD pair, so far, has struggled to attract any follow-through buying. This warrants some caution for bulls and before positioning for any further appreciating move amid the formation of a head & shoulders pattern on the daily chart.

Market participants now look forward to the US economic docket, highlighting the release of the Conference Board’s Consumer Confidence Index during the early North American session. This, along with the US bond yields and the broader market risk sentiment, might influence the USD and provide some impetus to the AUD/USD pair.

Technical levels to watch