AUD/USD remains on the defensive, downside seems cushioned near 0.7100 mark
- A goodish pickup in the USD demand prompted some selling around AUD/USD on Tuesday.
- Hawkish Fed expectations, elevated US bond yields continued acting as a tailwind for the USD.
- Signs of stability in the equity markets could help limit losses for the perceived riskier aussie.
The AUD/USD pair traded with a mild negative bias during the early North American session and was last seen hovering just a few pips above the daily low, around the 0.7115 area.
Having found some support ahead of the 0.7100 mark, the AUD/USD pair attracted some intraday buying on Tuesday, albeit struggled to capitalize on the move beyond the 0.7135-0.7140 region. Elevated US Treasury bond yields underpinned the US dollar, which, in turn, was seen as a key factor that acted as a headwind for the major.
In fact, the 2-year and 5-year US government bonds held steady near the highest level since February 2020 and July 2019, respectively, amid expectations for a faster policy tightening by the Fed. Adding to this, the yield on the benchmark 10-year note shot closer to the 2% threshold and provided an intraday lift to the buck.
It is worth mentioning that investors now seem convinced that the Fed will respond more aggressively to combat high inflation and have been pricing in a 50 bps rate hike in March. Hence, the market focus will remain glued to the release of the US CPI report on Thursday, which might influence the Fed's near-term policy outlook.
In the meantime, signs of stability in the equity markets might hold back traders from placing fresh bullish bets around the safe-haven buck. This, in turn, should lend some support to the perceived riskier aussie and help limit any meaningful slide for the AUD/USD pair amid absent market-moving economic data from the US.
Technical levels to watch