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AUD/USD remains on the defensive, around 0.6920 area amid modest USD strength

  • AUD/USD attracts some dip-buying on Wednesday, though lacks bullish conviction.
  • Retreating US bond yields appear to cap the USD and provide some support to the major.
  • Recession fears, hawkish Fed expectations favour USD bulls and cap gains for the pair.

The AUD/USD pair reverses an intraday dip to sub-0.6900 levels and climbs back nearer to the very best end of its daily range through the early area of the European session. The pair, however, lacks follow-through buying and happens to be trading with modest intraday losses, round the 0.6915-0.6920 region.

The US dollar trims part of its intraday gains and actually is an integral factor offering some support to the AUD/USD pair. A softer tone round the US Treasury bond yields appears to weigh on the greenback, though hawkish Fed expectations should limit the downside. Aside from this, the caution market mood could benefit the safe-haven buck and donate to keeping a lid on any meaningful upside for the major.

Market participants seem convinced that the Fed would continue steadily to tighten its monetary policy to tame inflation and also have been pricing in at the very least a 50 bps rate hike at the September FOMC meeting. This, alongside headwinds stemming from COVID-19 lockdowns in China, increases worries in regards to a global economic depression. Recession fears weigh on investors’ sentiment and really should become a headwind for the risk-sensitive aussie.

The downside, however, seems cushioned, at the very least for the moment, as investors might would rather await a hawkish message from Fed Chair Jerome Powell at the Jackson Hole symposium on Friday. Powell’s speech will undoubtedly be looked for clues in regards to a 75 bps rate hike in September, that will influence the USD price dynamics.

For the time being, traders usually takes cues from Wednesday’s US economic docket – featuring Durable Goods Orders and Pending Home Sales data later through the early UNITED STATES session. This, together with the US bond yields and the broader risk sentiment, will drive the USD demand and offer some impetus to the AUD/USD pair.

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