The AUD/USD pair comes under heavy selling pressure on Tuesday and snaps a three-day winning streak to a nearly two-week high, around the 0.6730 area touched the previous day. The pair maintains its offered tone through the first half of the European session and is currently placed around the 0.6675-0.6670 region, down nearly 0.70% for the day.
The Australian Dollar weakened a bit in reaction to the release of the dovish-sounding Reserve Bank of Australia (RBA) meeting minutes, which indicated that a pause in the rate-hiking cycle might be on the cards next month.
However, the Australian central bank warned that it would continue to do whatever is necessary to bring inflation back into line, though it did little to impress bulls or lend any support to the AUD/USD pair. This and a modest US Dollar bounce from a five-week low touched on Monday further contribute to the offered tone surrounding the major.
A further recovery in the US Treasury bond yields – bolstered by easing fears of a widespread contagion risk – is a crucial factor supporting the USD. That said, firming expectations for a less aggressive policy tightening by the Federal Reserve (Fed) could cap any meaningful upside for the US bond yields. A generally positive risk tone, supported by the news that UBS will rescue Credit Suisse in a $3.24 billion deal, keeps a lid on the safe-haven Greenback and might help limit more profound losses for the risk-sensitive Aussie, at least for the time being.
Traders might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the highly-anticipated two-day FOMC meeting starting this Tuesday. The Fed will announce its decision on Wednesday and is widely expected to deliver a smaller 25 bps rate hike. Market participants also hope the US central bank might cut rates during the year’s second half. Hence, investors will look for fresh clues about the Fed’s future rate-hike path, influencing the near-term USD price dynamics and determining the near-term trajectory for the AUD/USD pair.
Heading into the critical central bank event risk, traders on Tuesday might take cues from the release of the US Existing Home Sales data, due later during the early North American session. This and the US bond yields will drive the USD demand and provide some impetus to the AUD/USD pair. Apart from this, the broader risk sentiment could further contribute to producing short-term opportunities.