The AUD/USD pair struggles to capitalize on the previous day’s positive move and seesaws between tepid gains/minor losses through the early European session. The pair is placed just above the 0.6700 round-figure mark, nearly unchanged for the day, and remains below a technically significant 200-day Simple Moving Average (SMA).
A combination of factors assists the US Dollar (USD) in attracting some intraday buying, which, in turn, is acting as a headwind for the AUD/USD pair. Speculations that the Federal Reserve (Fed) will continue raising interest rates support the recent US Treasury bond yields rally. The yield on the benchmark 10-year US government bond and the rate-sensitive two-year US Treasury note climb to over a four-week high. This, along with a generally weaker tone around the equity markets, helps revive demand for the safe-haven Greenback and contributes to capping the upside for the perceived riskier Aussie.
The uncertainty over the Fed’s rate-hike path holds back the USD bulls from placing aggressive bets and lends some support to the AUD/USD pair. It is worth mentioning that several Fed officials called for more hikes, and the markets have nearly priced in a 25 bps lift-off in May. The Fed funds futures, however, indicate only a slight chance of another rate hike in June. Apart from this, a lower probability of a recession in Australia and the hawkish tone from the Reserve Bank of Australia’s (RBA) April meeting minutes and the upbeat China macro data should limit the downside for the Australian Dollar.
The above mixed fundamental backdrop warrants caution for aggressive traders before positioning for a firm near-term direction for the AUD/USD pair. Without any relevant market-moving economic data from the US on Wednesday, investors will focus on the release of the Fed’s Beige Book, due later during the US session, for the central bank’s take on the state of the US economy. This, along with the US bond yields and the broader risk sentiment, should influence the USD price dynamics and allow traders to grab short-term opportunities around the AUD/USD pair.