- AUD/USD edged higher on Tuesday, albeit struggled to find acceptance above 0.7800 mark.
- The prevalent bullish sentiment undermined the safe-haven USD and benefitted the aussie.
- Surging US bond yields helped limit the USD losses and capped any further gains for the pair.
The AUD/USD pair retreated around 30 pips from one-month tops and refreshed daily lows in the last hour, albeit lacked any follow-through selling.
The pair built on its recent strong positive move witnessed over the past two weeks or so and gained some follow-through traction through the first half of the trading action on Tuesday. The prevalent risk-on environment undermined the US dollar’s safe-haven demand and was seen as a key factor that benefitted the perceived riskier Australian dollar.
The global risk sentiment remained well supported by the progress in vaccination for the highly contagious coronavirus disease. This, along with expectations for a massive US fiscal spending plan, further fueled optimism about a strong global economic recovery and boosted investors’ confidence, which was evident from the ongoing rally in the equity markets.
Bulls, however, struggled to capitalize on the early positive move or find acceptance above the 0.7800 round-figure mark. A strong follow-through upsurge in the US Treasury bond yields, which jumped to the highest level since February 2020, extended some support to the greenback and kept a lid on any further gains for the AUD/USD pair, at least for now.
The prospects for the passage of the US President Joe Biden’s proposed $1.9 trillion COVID-19 relief package is expected to encourage faster economic recovery and also contribute to rising inflationary pressures. In fact, expectations for inflation over the next decade jumped to 2.22% or the highest level since August 2014.
There isn’t any major market-moving economic data due for release from the US on Tuesday, leaving the USD at the mercy of the broader market risk sentiment and the US bond yield dynamics. Hence, it remains to be seen if the pullback marks the end of the recent positive move or the AUD/USD pair is able to attract some dip-buying at lower levels.