AUD/USD remains on the defensive near mid-0.7400s, downside seems cushioned

• AUD/USD witnessed modest intraday pullback from the fresh YTD top touched on Wednesday.
• The Fed’s hawkish outlook, elevated US bond yields underpinned the USD and capped the upside.
• The Russia-Ukraine crisis weighed on investors’ sentiment and also benefitted the safe-haven buck.
• Upward pressure on commodity prices helped limit deeper losses for the resources-linked aussie.

The AUD/USD pair remained on the defensive through the early North American session and was last seen hovering near the daily low, around mid-0.7400s.

The pair witnessed modest pullback from the 0.7480 area or the highest level since early November 2021 touched earlier this Wednesday and eroded a part of the previous day's strong gains. The recent blowout rally in the US Treasury bond yields, bolstered by the Fed's hawkish outlook, acted as a tailwind for the US dollar. This, in turn, was seen as a key factor that acted as a headwind for the AUD/USD pair.

It is worth recalling that the Fed last week indicated that it could raise rates at all the remaining six meetings in 2022. Moreover, Fed Chair Jerome Powell suggested that the US central bank could adopt a more aggressive policy response to combat stubbornly high inflation. This, in turn, pushed the yield on the benchmark 10-year US government bond to the highest level since 2019 earlier this Wednesday.

Apart from this, modest pullback in the equity markets drove some haven flows towards the greenback and weighed on the perceived riskier aussie. The lack of progress in the Russia-Ukraine peace negotiations kept investors on the edge and benefitted the safe-haven buck. Russian Foreign Minister Sergei Lavrov said that talks with Ukraine are difficult as Kyiv is constantly changing its position.

Separately, Italy's Prime Minister Mario Draghi noted that Russia is not showing interest in a truce for successful peace talks. This, in turn, tempered investors' appetite for riskier assets and exerted some downward pressure on the AUD/USD pair. The downside, however, remains cushioned amid rising commodity prices, which continued lending some support to the resources-linked Australian dollar.

In fact, commodity prices have been facing upward pressure amid concerns over global supply chain disruptions following Russia's invasion of Ukraine and the imposition of fresh COVID-19 restrictions in China. This, in turn, warrants some caution before confirming that the AUD/USD pair has topped out in the near term and positioning for any meaningful corrective slide amid absent economic releases.

Technical levels to watch