AUD/USD sticks to gains near mid-0.6900s amid modest USD weakness, positive risk tone

• A combination of supporting factors assisted AUD/USD to regain positive traction.
• The risk-on mood benefitted the risk-sensitive aussie amid subdued USD demand.
• The recent fall in commodity prices could cap gains for the resources-linked aussie.

The AUD/USD pair attracted fresh buying on Tuesday and climbed to a four-day high, around the 0.6965 region during the first half of the European session.

Hopes that inflation might be nearing its peak boosted investors' confidence, which was evident from a generally positive tone around the equity markets. This, in turn, offered some support to the risk-sensitive amid subdued US dollar price action. The softening inflation expectations forced investors to scale back their expectations for a more aggressive policy tightening by the Fed. The repricing of the future Fed rate hikes kept the USD bulls on the defensive and provided a modest lift to the AUD/USD pair.

That said, a goodish pickup in the US Treasury bond yields helped limit any deeper losses for the buck, which, so far, has managed to hold above a one-week low touched the previous day. Apart from this, the recent decline in commodity prices might hold back traders from placing aggressive bullish bets around the resources-linked Australian dollar. This makes it prudent to wait for strong follow-through buying before confirming that the AUD/USD pair has bottomed out and positioning for any meaningful upside.

Market participants now look forward to the US economic docket, featuring the release of the Conference Board's Consumer Confidence Index and Richmond Manufacturing Index later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities ahead of Fed Chair Jerome Powell's appearance on Wednesday.

Technical levels to watch