AUD/USD holds steady around 0.7200 mark, lacks bullish conviction amid risk-off

• AUD/USD attracted some dip-buying on Tuesday and turned positive for the second straight day.
• Rising bets for an eventual RBA rate hike turned out to be a key factor that underpinned the aussie.
• The risk-off mood kept a lid on any meaningful gains amid a goodish pickup in demand for the USD.

The AUD/USD pair retreated a few pips from the daily high and was last seen trading with modest gains, around the 0.7200 round-figure mark.

The pair attracted some dip-buying near the 0.7170 area on Tuesday and turned positive for the second successive day, though the risk-off mood capped gains for the perceived riskier aussie. The global risk sentiment took a hit amid a further escalation in tensions between Russia and the West over Ukraine.

Russian President Vladimir Putin formally recognised two breakaway regions – Donetsk and Luhansk – in eastern Ukraine as independent entities and ordered troops to enter the area to maintain peace. This, in turn, fueled fears of a major war and triggered a fresh wave of the global risk-aversion trade.

The latest geopolitical developments might have dashed hopes for a more aggressive policy response by the Fed to combat stubbornly high inflation. This, along with the anti-risk flow, led to a sharp decline in the US Treasury bond yields and kept a lid on any meaningful upside for the buck.

On the other hand, growing expectations for an eventual rate hike by the Reserve Bank of Australia (RBA) acted as a tailwind for the domestic currency. The fundamental backdrop supports prospects for additional gains for the AUD/USD pair, though the lack of follow-through buying warrants caution.

Market participants now look forward to the release of the US flash PMI prints later during the early North American session. The focus, however, will remain on developments surrounding the situation in Ukraine, which will influence the USD demand and provide some impetus to the AUD/USD pair.

Technical levels to watch