AUD/USD climbs back above 0.7500 mark, fresh daily high amid modest USD weakness

• AUD/USD attracted some dip-buying on Tuesday and was supported by a combination of factors.
• Better-than-expected Australian data, a positive risk tone benefitted the perceived riskier aussie.
• Hawkish Fed expectations should limit any meaningful USD losses and cap the upside for the pair.

The AUD/USD pair climbed to a fresh daily high during the early European session and is now looking to build on the momentum further beyond the 0.7500 round-figure mark.

Following an early dip to the 0.7475 region, the AUD/USD pair attracted some buying on Tuesday and for now, seems to have stalled the previous day's retracement slide from the YTD peak. The Australian dollar drew some support from better-than-expected domestic Retail Sales data, which showed a 1.8% growth as against consensus estimates pointing to a 1% rise.

On the other hand, a generally positive risk tone undermined the safe-haven US dollar and also extended some support to the perceived riskier aussie. That said, expectations that the Fed would adopt a more aggressive policy response to combat stubbornly high inflation should act as a tailwind for the buck. This, in turn, might cap any further gains for the AUD/USD pair.

In fact, the markets have been pricing in a 50 bps Fed rate hike move at the next two meetings. This was reinforced by the recent surge in the US Treasury bond yields, which pushed the 10-year note beyond the 2.5%, or a nearly three-year high on Monday. Hence, it will be prudent to wait for some follow-through buying before placing fresh bullish bets around the AUD/USD pair.

Market participants now look to the US economic docket, featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index. This, along with the US bond yields, will drive the USD demand. Traders will further take cues from developments surrounding the Russia-Ukraine saga, which will influence the risk sentiment and provide some impetus to the AUD/USD pair.

Technical levels to watch