• AUD/USD attracts some dip-buyers as softer US bond yields keep USD bulls on the defensive.
• The Fed’s hawkish tilt and geopolitical uncertainties help limit losses for the safe-haven buck.
• Traders also seem hesitant ahead of the US inflation figures and Fed Chair Warsh’s speech.

The AUD/USD pair struggles to capitalize on a modest Asian session uptick, trading below the 0.7000 psychological mark and below a nearly two-week high, touched earlier this Monday.

Against the backdrop of the recent minor pullback in US bond yields from multi-year highs, the US Dollar (USD) kicks off the new week on a weaker note amid hopes that the Russian-Ukraine energy peace deal will ease global fuel shortages, reducing inflationary fears. However, the US Federal Reserve’s (Fed) hawkish tilt, along with tensions in the Middle East, helps limit losses for the safe-haven Greenback and caps gains for the AUD/USD pair.

Although market participants have been pricing out the probability of a rate hike at the late-October Fed meeting, expectations for a 25-basis-point (bps) increase in December remain firmly on the table. The bets were reaffirmed by September FOMC Minutes, released last Wednesday, which revealed that policymakers still view inflation as the dominant threat to macroeconomic stability and back the case for further policy tightening by the year-end.

From the Middle East, the Iran-backed Houthi group in Yemen escalated their campaign against Saudi Arabia, targeting Riyadh’s King Khalid International Airport with a mix of ballistic and cruise missiles, as well as drones over the weekend. Adding to this, US President Donald Trump raised the possibility of resuming attacks on Iran. This keeps the geopolitical risk premium in play, backing the case for the emergence of dip-buying around the safe-haven buck.

Traders might also refrain from placing aggressive directional bets and opt to wait for the release of the latest US inflation figures – the Producer Price Index (PPI) and the Consumer Price Index (CPI) on Wednesday and Thursday, respectively. This will be followed by Fed Chair Kevin Warsh’s speech at the annual meetings of the IMF and World Bank in Bangkok on Friday, which will drive the USD and provide some meaningful impetus to the AUD/USD pair.

AUD/USD 4-hour chart

Technical Analysis

The AUD/USD pair struggles to find acceptance above the 23.6% Fibonacci retracement level and keeps a bearish near-term tone beneath the 100-period Simple Moving Average (SMA) on the 4-hour chart. This, in turn, suggests that rallies are likely to face supply while spot prices remain capped below this cluster. On the downside, the next notable structural support emerges at the Fibonacci anchor around 0.6902, where buyers would be expected to show more interest if the decline extends.