- AUD/USD meets with some supply after RBA hikes interest rates by 25 bps on Tuesday.
- A modest USD uptick further exerts some pressure, though the downside seems limited.
- Retreating US bond yields, the risk-on impulse seems to cap the buck and offers support.
The AUD/USD pair comes under fresh selling pressure on Tuesday and erodes a part of the previous day's strong gains. The pair maintains its offered tone through the early European session and is currently placed near the lower end of its daily trading range, just above mid-0.6400s.
The Australian dollar reacts negatively to the Reserve Bank of Australia's (RBA) decision to slow the pace of policy tightening and raise interest rates by 25 bps against expectations for a 50 bps hike. This, along with a modest US dollar uptick, exerts downward pressure on the AUD/USD pair. The downside, however, seems limited, at least for the time being, warranting some caution for bearish traders.
In the accompanying monetary policy statement, the Australian central bank said that it expects to keep raising interest rates this year as inflation is trending well above the target range. Furthermore, RBA Governor Philip Lowe noted that inflation is likely to rise in the coming months and end the year at about 7.75%. This, along with a tight labour market, gives the RBA more space to tighten further.
The USD, on the other hand, has been struggling to gain any meaningful traction amid the ongoing fall in the US Treasury bond yields. Apart from this, the risk-on impulse - as depicted by a strong follow-through rally in the US equity futures - acts as a headwind for the safe-haven greenback. This, in turn, offers some support to the risk-sensitive aussie and helps limit losses for the AUD/USD pair.
Market participants now look forward to the US economic docket - featuring JOLTS Job Openings and Factory Orders data. This, along with speeches by FOMC members and the US bond yields, will influence the USD and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities around the major.
