AUD/USD flat-lined above mid-0.6900s as traders await the crucial US CPI report

• AUD/USD reverses modest intraday slide, through the uptick lacks bullish conviction.
• Subdued USD price action turns out to be a key factor lending support to the major.
• The cautious mood caps the risk-sensitive as the focus remains on the US CPI report.

The AUD/USD pair attracts some buying near the 0.6945 area on Wednesday and climbs to a fresh daily high during the early part of the European session. The uptick, however, lacked follow-through, though spot prices manage to reverse a part of the previous day's downfall.

The US dollar continues with its struggle to gain any meaningful traction, which turns out to be a key factor extending some support to the AUD/USD pair. The New York Fed’s Survey of Consumer Expectations on Monday showed that the inflation outlook declined significantly in July. This seems to have tempered speculations for a more aggressive policy tightening by the Fed. The markets, however, are pricing in around 70% chances of a 75 bps Fed rate hike move at the September meeting. The uncertainty over the Fed's policy tightening path keeps the USD bulls on the defensive ahead of the crucial US consumer inflation figures.

The US CPI report, due later during the early North American session on Wednesday, would be looked upon for fresh clues about the prospects for a larger Fed rate hike move. This, in turn, would play a key role in influencing the US dollar and provide a fresh directional impetus to the AUD/USD pair. In the meantime, an uptick in the US Treasury bond yields, along with the cautious mood, is acting as a tailwind for the safe-haven buck and capping the risk-sensitive aussie. The market sentiment remains fragile amid growing recession fears and US-China tensions over Taiwan. This, in turn, warrants some caution for bullish traders.

Even from a technical perspective, the recent two-way price moves witnessed over the past one week or so point to indecision over the near-term trajectory for the AUD/USD pair. This further makes it prudent to wait for some follow-through buying before positioning for an extension of a near one-month-old recovery trend from the 0.6680 region, or over a two-year low touched in July.

Technical levels to watch