AUD/USD slides to multi-day low amid slump in commodities on hopes for peace in Ukraine

• AUD/USD turned lower for the second straight day, though the downside remains limited.
• Hopes for diplomacy in Ukraine weighed on commodities and the resources-linked aussie.
• The risk-on impulse undermined the safe-haven USD and extended support to the major.

The AUD/USD pair witnessed aggressive selling during the mid-European session and dropped to a four-day low, around mid-0.7400s in the last hour.

The pair struggled to preserve its intraday gains, instead met with a fresh supply near the 0.7250 region and drifted into the negative territory for the second successive day on Tuesday. The incoming geopolitical headlines surrounding the Russia-Ukraine saga lifted hopes for a diplomatic solution to end the war. This, in turn, triggers a sharp pullback in commodity prices and was seen as a key factor that undermined the resources-linked Australian dollar.

In fact, the Russian Defense Ministry said that it would scale down military activity in Kyiv and Chernihiv in order to create conditions for dialogue. Moreover, a Ukrainian negotiator noted that there have been enough developments to hold a meeting between Ukrainian President Volodymyr Zelenskyy and Russian President Vladimir Putin. The AUD/USD pair retreated around 70 pips from the daily high, though a broad-based US dollar weakness helped limit losses.

The risk-on impulse - as depicted by a strong rally in the equity markets - dented demand for traditional safe-haven assets, including the buck, and extended some support to the perceived riskier aussie. This warrants caution before confirming that the AUD/USD pair has topped out and before positioning for any meaningful corrective pullback. Hence, any subsequent slide might still be seen as a buying opportunity and remain limited near the 0.7420 horizontal support.

Market participants now look to the US economic docket, featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index. The focus, however, will remain on geopolitics, which will influence the risk sentiment and commodities. This, along with the US bond yields, will drive the USD demand and provide some impetus to the AUD/USD pair.

Technical levels to watch