AUD/USD sticks to gains near mid-0.6400s, lacks follow-through ahead of RBA on Tuesday

• AUD/USD regains some positive traction on Monday and snaps a two-day losing streak.
• A combination of factors keeps the USD bulls on the defensive and offers some support.
• Traders look forward to the US ISM PMI for some impetus ahead of the RBA on Tuesday.

The AUD/USD pair attracts some buying near the 0.6400 mark on Monday and maintains its bid tone through the early European session. The pair, for now, seems to have snapped a two-day losing streak and is currently trading around mid-0.6400s, up 0.70% for the day.

A combination of factors exerts some downward pressure on the US dollar, which, in turn, offers some support to the AUD/USD pair. UK Finance Minister Kwasi Kwarteng confirmed that his government will not go ahead with a plan to scrap a 45% rate of income tax and provides a modest lift to the British pound. This, along with declining US Treasury bond yields, keeps the USD bulls on the defensive.

In fact, the benchmark 10-year US Treasury note moves away from a 12-year high touched last Wednesday. Apart from this, signs of stability in the financial markets - as depicted by a positive tone around the US equity markets - further undermine the safe-haven greenback and benefit the risk-sensitive aussie. That said, the lack of follow-through selling warrants caution for aggressive bulls.

Traders now seem reluctant and might prefer to move to the sidelines ahead of the key Reserve Bank of Australia policy decision on Tuesday. In the meantime, growing acceptance that the Federal Reserve will continue to hike interest rates at a faster pace should act as a tailwind for the US bond yields and limit the downside for the USD. This, in turn, could cap the upside for the AUD/USD pair.

Hence, it will be prudent to wait for strong follow-through buying before positioning for any further near-term appreciating move. Market participants now look forward to the US ISM Manufacturing PMI, due later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will influence the USD and provide some impetus to the AUD/USD pair.

Technical levels to watch