AUD/USD sits near two-week peak, just above 0.7100 mark amid risk-on/weaker USD

• A combination of supporting factors pushed AUD/USD to a two-week high on Monday.
• RBA’s hawkish signal acted as a tailwind for the aussie amid broad-based USD weakness.
• The risk-on impulse dragged the USD to a fresh monthly low and remained supportive.

The AUD/USD pair now seems to have entered a bullish consolidation phase and was seen oscillating in a range around the 0.7100-0.7110 area, or a two-week high.

Following Friday's modest downtick, the AUD/USD pair attracted fresh buying on the first day of a new week and was supported by a combination of factors. The Australian dollar continued drawing support from the Reserve Bank of Australia's hawkish signal that a bigger interest rate hike is still possible in June amid the upside risks to inflation. On the other hand, the risk-on impulse undermined the safe-haven US dollar and further benefitted the risk-sensitive aussie.

Investors turned optimistic amid hopes that loosening COVID-19 lockdowns in China could boost the global economy. This was evident from a generally positive tone around the equity markets, which drove flows away from traditional safe-haven assets and dragged the USD to a fresh monthly low. That said, hawkish Fed expectations could help limit any deeper USD losses.

The markets have fully priced in a 50 bps rate hike over the next two meetings, though expect that the US central bank would need to take more drastic action to bring inflation under control. This, along with an uptick in the US Treasury bond yields, supports prospects for the emergence of some USD buying, which, in turn, should cap the AUD/USD pair, at least for now.

In the absence of any major market-moving economic releases from the US, the broader risk sentiment and the US bond yields will influence the USD price dynamics. Traders will then look forward to the release of the flash PMI prints from Australia and the US on Tuesday for some meaningful impetus. The focus, however, will remain on Wednesday's release of the FOMC meeting minutes.

Technical levels to watch