AUD/USD manages to hold above 0.6400, upside potential seems limited amid bullish USD

• AUD/USD continues to find support near 0.6400, though remains confined in a familiar range.
• The USD stands by the YTD peak amid the Fed's hawkish outlook and caps gains for the pair.
• Worries about a property crisis in China also hold back the Aussie bulls from placing fresh bets.

The AUD/USD pair attracts some dip-buying in the vicinity of the 0.6400 round-figure mark during the Asian session on Tuesday and touches a fresh daily high in the last hour. Spot prices currently trade around the 0.6425 regio, up less than 0.10% for the day, and remain confined in a familiar range held over the past two weeks or so.

The US Dollar (USD) takes a brief pause following the recent rally to its highest level since December 2022 and turns out to be a key factor lending some support to the AUD/USD pair. That said, the Federal Reserve's (Fed) hawkish outlook favours the USD bulls, which, along with concerns about a property market crisis in China, should keep a lid on any meaningful recovery for the major. The US central bank last week reiterated that interest rates will remain higher for longer and backed the case for at least one more 25 bps rate hike by the end of this year.

The bets were reaffirmed by comments from influential FOMC members, saying that borrowing costs will need to remain elevated for an extended period to bring inflation back to the 2% target. Furthermore, investors are now getting increasingly wary about the potential inflationary impact of rising Oil prices. Adding to this, the incoming resilient US macro data should allow the Fed to stick to its hawkish stance. Meanwhile, policymakers see just two rate cuts in 2024 as compared to four projected previously and continue to push the US Treasury bond yields higher.

In fact, the yield on the rate-sensitive two-year US government bond jumps to a 17-year high and the benchmark 10-year Treasury yield climbs beyond the 4.50% threshold for the first time since 2007. This, in turn, suggests that the path of least resistance for the USD is to the upside, suggesting that any attempted recovery around the AUD/USD pair is more likely to get sold into. Traders now look to the US economic docket – featuring the Conference Board's Consumer Confidence Index, New Home Sales and the Richmond Manufacturing Index – for a fresh impetus.

Technical levels to watch