The AUD/USD pair comes under renewed selling pressure on Tuesday, reversing a major part of the previous day’s positive move. The pair remains depressed below the 0.6900 mark through the first half of the European session and, for now, seems to have stalled the recent bounce from its lowest level since January 6 touched last Friday.
A combination of factors pushes the US Dollar higher, which, in turn, is seen weighing on the AUD/USD pair. The prospects for further policy tightening by the Federal Reserve trigger a fresh leg up in the US Treasury bond yields and continue to underpin the Greenback.
A generally softer tone around the equity markets benefits the safe-haven buck and drives flows away from the risk-sensitive Aussie. The markets now seem convinced that the US central bank will stick to its hawkish stance and have been pricing in at least a 25 bps lift-off at the next two FOMC meetings in March and May.
The US CPI and PPI data reaffirmed the bets last week, which showed that inflation isn’t coming down quite as fast as hoped. Furthermore, many FOMC members stressed the need to lift rates to tame inflation gradually.
The market sentiment, meanwhile, remains fragile amid growing worries about economic headwinds stemming from rapidly rising borrowing costs. This and geopolitical tensions take temper investors’ appetite for riskier assets.
To a larger extent, this overshadows a more hawkish tilt from the Reserve Bank of Australia (RBA) meeting minutes and does little to impress bullish traders or lend any support to the AUD/USD pair.
The minutes showed that the Australian central bank had considered raising interest rates by 50 bps during its February meeting, though eventually settled on a 25 bps hike. Furthermore, the board agreed that more interest rate hikes are needed over the coming months to bring down inflation.
The AUD/USD pair’s inability to attract buyers suggests that the recent pullback from a multi-month top is far from over. Market participants now look to the US economic docket, featuring the release of flash PMI prints and Existing Home Sales data.
This, along with the US bond yields and the broader risk sentiment, could influence the USD price dynamics and provide some impetus to the AUD/USD pair. The focus, however, will remain glued to the latest FOMC meeting minutes, which will play a key role in determining the near-term trajectory.
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