- AUD/USD attracts some buyers on Tuesday amid subdued USD price action.
- China’s COVID-19 woes, hawkish Fed expectations could limit the USD losses.
- RBA Governor Lowe's comments fail to impress bulls or provide any impetus.
The AUD/USD pair regains some positive traction on Tuesday and recovers a part of the previous day's slide to over a one-week low. The pair maintains its bid tone through the first half of the European session and is currently placed near the daily peak, around the 0.6630-0.6635 region.
The US Dollar stalls its recent strong recovery move from the lowest level since August 12 and edges lower on Tuesday, which, in turn, is seen offering some support to the AUD/USD pair. The fundamental backdrop, however, still seems tilted in favour of the USD bulls. Hence, any subsequent move up might still be seen as an opportunity to initiate fresh bearish positioning around the major and runs the risk of fizzling out rather quickly.
The market sentiment remains fragile amid worries about economic headwinds stemming from a new COVID-19 outbreak in China and the imposition of fresh lockdowns in several cities. Apart from this, fears of a further escalation in the Russia-Ukraine conflict take its toll on the global risk sentiment. This is evident from a softer tone around the equity markets, which should act as a tailwind for the safe-haven buck and cap the risk-sensitive Aussie.
Furthermore, hawkish signals by Fed officials suggest that the US central bank is far from pausing its rate-hiking cycle, which should further lend support to the USD. Meanwhile, Reserve Bank of Australia (RBA) Governor Philip Lowe said on Tuesday that the central bank could return to 50 bps moves or keep rates unchanged for a time. This, along with the worsening COVID-19 situation in China, validates the bearish outlook for the AUD/USD pair.
Market participants now look forward to the release of the Richmond Manufacturing Index from the US. Apart from this, traders will take cues from a scheduled speech by Cleveland Fed President Loretta Mester. This, along with the broader market risk sentiment, will influence the USD price dynamics and allow traders to grab short-term opportunities around the AUD/USD pair.
Technical levels to watch
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