- AUD/SUD faced rejection near 100-day SMA for the second straight day on Tuesday.
- Dovish RBA, cautious mood acted as a headwind for the perceived riskier aussie.
- Fed rate hike bets continued underpinning the USD and collaborated to cap gains.
The AUD/USD pair remained on the defensive through the early European session and was last seen hovering near the lower end of its daily trading range, around the 0.7335 region.
The pair gained some positive traction during the early part of the trading action on Tuesday, albeit struggled to capitalize on the move and once again faced rejection near the 100-day SMA barrier. Worries about a faster-than-expected rise in inflationary pressures continued weighing on investors' sentiment. This was evident from the cautious mood around the equity markets, which, in turn, acted as a tailwind for the perceived riskier aussie.
Apart from this, the Reserve Bank of Australia's dovish outlook further collaborated to cap the upside for the AUD/USD pair. In the minutes of its November meeting released today, the RBA reiterated that the cash rate will remain at its current level until 2024 or until wage and inflation criteria are met. Adding to this, the RBA Governor Philip Lowe said that the latest data and forecasts do not warrant an increase in the cash rate in 2022.
On the other hand, the US dollar stood tall near the 16-month peak touched in the previous session amid the prospects for an early policy tightening by the Fed. In fact, the markets have been pricing in the possibility for an eventual Fed rate hike move by July 2022 and the Fed funds futures indicate a high likelihood of another raise by November. That said, retreating US Treasury bond yields held the USD bulls from placing aggressive bets.
Investors also preferred to wait on the sidelines ahead of Tuesday's release of the US monthly Retail Sales figures. The combination of factors, in turn, helped limit any meaningful slide for the AUD/USD pair, at least for the time being. The data, along with the US bond yields and speeches by a slew of FOMC members, will influence the USD and provide a fresh impetus to the AUD/USD pair later during the early North American session.
