AUD/USD clings to gains near 0.6670 area amid softer USD, upside seems limited

• AUD/USD regains positive traction and snaps a five-day losing streak to over a three-month low.
• The upbeat domestic data, along with a modest USD weakness, lend some support to the major.
• Bets for more rate hikes by the Fed should limit the USD losses and cap the upside for the pair.

The AUD/USD pair attracts some buyers on Tuesday and snaps a five-day losing streak to over a three-week low, around the 0.6620 region touched the previous day. The pair maintains its bid tone through the early part of the European session and is currently placed near the top end of the daily trading range, around the 0.6665-0.6670 area, up nearly 0.50% for the day.

The Australian Dollar gets a goodish lift after domestic data indicated an improvement in consumer sentiment in the wake of the Reserve Bank of Australia's (RBA) rate-hike pause earlier this month. In fact, the Westpac-Melbourne Institute Consumer Sentiment index bounced from near-record lows and jumped 9.4% to 85.8 in early April, recording its fastest rise since late-2020. Adding to this, the National Australia Bank Business Confidence Index improved to -1 from -4 previously, suggesting that the economy is still holding up.

Apart from this, a generally positive tone around the equity markets undermines the safe-haven US Dollar (USD) and further benefits the risk-sensitive Aussie. The USD downtick, however, is likely to remain cushioned amid speculations that the Federal Reserve (Fed) may continue raising interest rates. In fact, the current market pricing indicates a greater chance of a 25 bps lift-off at the next FOMC monetary policy meeting in May and the bets were lifted by the mostly upbeat US employment details (NFP) released on Friday.

The prospects for further policy tightening by the Fed, meanwhile, puts a floor under the US Treasury bond yields, which should further act as a tailwind for the Greenback and contribute to capping gains for the AUD/USD pair. Traders might also refrain from placing aggressive bets and prefer to wait for this week's important releases from the US - the latest consumer inflation figures and the FOMC meeting minutes on Wednesday. This, along with the US Retail Sales data on Friday, will influence the near-term USD price dynamics.

In the meantime, the US bond yields will drive the USD demand and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader risk sentiment to grab short-term opportunities. Nevertheless, the fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the recent rejection slide from the 100-day Simple Moving Average (SMA) has run its course.

Technical levels to watch