AUD/USD eases from two-week high, holds above 0.7200 amid improving risk sentiment

• A combination of factors pushed AUD/USD to a near two-week high on Tuesday.
• RBA rate hike bets acted as a tailwind amid the emergence of fresh USD selling.
• A turnaround in the risk sentiment further benefitted the perceived riskier aussie.

The AUD/USD pair maintained its strong bid tone heading into the North American session and was last seen trading near the 0.7215 region, just below the two-week high.

Following an early slide to the 0.7170 area, the AUD/USD pair regained positive traction for the second successive day and was supported by a combination of factors. Rising bets for an eventual interest rate hike by the Reserve Bank of Australia acted as a tailwind for the domestic currency. Apart from this, renewed US dollar selling further provided a lift to the perceived riskier aussie.

The nervousness over the worsening situation in Ukraine eased after a Kremlin spokesperson said that Russia is still open to diplomacy and has an interest in that. This, in turn, led to a solid rebound in the equity markets and drove flows away from traditional safe-haven assets, including the buck. The sentiment, however, remains fragile amid the risk of a further escalation in the Ukraine crisis.

Russian President Vladimir Putin upped the ante on Monday by recognizing two breakaway regions in eastern Ukraine as independent entities and sending troops to maintain peace. This fueled fears about a full-blown East-West conflict that could unleash a major war. In fact, British Prime Minister Boris Johnson imposed sanctions on five Russian banks and banned three individuals from travelling to the UK.

The United States is also expected to announce new sanctions against Russia, which should keep a lid on any optimistic move in the markets. This, along with a solid rebound in the US Treasury bond yields, should act as a tailwind for the greenback and cap the upside for the AUD/USD pair. Hence, it will be prudent to wait for some follow-through buying before positioning for any further appreciating move.

Even from a technical perspective, the AUD/USD pair, so far, has struggled to break through the 100-day SMA. The said barrier coincides with the monthly high, around mid-0.7200s, which if cleared decisively will be seen as a fresh trigger for bullish traders. The momentum could then push spot prices beyond an intermediate resistance near the 0.7275-0.7280 area, towards reclaiming the 0.7300 round figure.

Market participants now look forward to the release of the flash US PMI prints for February. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the incoming geopolitical headlines and the broader market risk sentiment to grab some short-term opportunities around the major.

Technical levels to watch