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AUD/USD retreats from a multi-month high touched on Monday, albeit lacks follow-through.
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A softer risk tone lifted the safe-haven USD and weighed on the risk-sensitive Australian dollar.
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Bets for smaller Fed rate hikes cap the Greenback and help limit the downside for the major.
The AUD/USD pair finds some support near the 0.6940 area and stalls its intraday retracement slide from the highest level since August 17 touched earlier this Monday. The pair is currently placed around the 0.6970 area, nearly unchanged for the day, and is influenced by the US Dollar’s price dynamics.
The USD index, which measures the greenback’s performance against a basket of currencies, led a nice rebound from seven-month lows and prompted some selling near the AUD/USD pair. A softer risk tone, amid concerns about a deep global economic slowdown, favors safe havens and drives away risk-sensitive Australia. That said, speculation that the Fed may be nearing the end of its rate-hiking cycle puts a lid on any meaningful upside for the USD.
Investors now seem convinced that the US central bank will soften its hawkish stance amid signs of easing inflationary pressures. In fact, the latest US CPI report released last week showed that consumer prices fell in December for the first time in more than 2-1/2 years. This, in turn, lifted bets for a smaller 25 bps Fed rate hike move in February, which continues to act as a headwind for the buck and helps limit deeper corrective pullback for the AUD/USD pair, at least for now.
The Australian Dollar, on the other hand, draws support from rising odds for a further interest rate hike by the Reserve Bank of Australia (RBA) in February, bolstered by stronger domestic inflation figures released last week. This, in turn, makes it prudent to wait for strong follow-through selling before confirming that the AUD/USD pair has topped out in the near term. Traders now look forward to important Chinese macro data, due for release on Tuesday, for a fresh impetus.
Technical levels to watch
AUD/USD
