AUD/USD reverses an early dip to 0.7100 area, upside seems capped amid stronger USD

• AUD/USD attracted dip-buying near the 0.7100 mark on Tuesday, though lacked any follow-through.
• A recovery in the risk sentiment was seen as a key factor that benefitted the perceived riskier aussie.
• A fresh leg up in the US bond yields boosted the USD and might keep a lid on any meaningful gains.

The AUD/USD pair seesawed between tepid gains/minor losses through the early European session and was last seen trading in the neutral territory, around the 0.7130 region.

Following the previous day's brief pause, the US dollar was back in demand on Tuesday and is now looking to build on the post-NFP recovery from a two-and-half week low. This, in turn, was seen as a key factor that prompted some intraday selling around the AUD/USD pair, though the early downtick found support ahead of the 0.7100 mark.

The USD drew support from a fresh leg up in the US Treasury bond yields, bolstered by the prospects for a faster policy tightening by the Fed. In fact, the markets have been pricing in the possibility of a full 50 bps rate hike at the March FOMC policy meeting, which, in turn, pushed the US bond yields higher and underpinned the greenback.

That said, a recovery in the global risk sentiment – as depicted by a positive tone around the equity markets – extended some support to the perceived riskier aussie. Traders also seemed reluctant to place aggressive bets and might prefer to wait on the sidelines ahead of Thursday's release of the latest US consumer inflation figures.

In the meantime, the US bond yields will continue to play a key role in influencing the USD price dynamics amid absent relevant market moving economic releases. This, along with the broader market risk sentiment, could provide some impetus to the AUD/USD pair and allow traders to grab some short-term opportunities.

Technical levels to watch