The struggle of AUD/USD to maintain gains

The struggle of AUD/USD to maintain gains

The AUD/USD pair is failing to hold onto its modest intraday gains as USD buying emerges in the market. The Federal Reserve’s hawkish outlook has led to elevated US bond yields, which is supporting the US dollar against other major currencies.

Equity Markets Influence

A minor pullback in the equity markets is further driving flows away from the risk-sensitive Australian dollar. This has added to the downward pressure on the AUD/USD pair, causing it to struggle to break above the 100-day Simple Moving Average.

Persistent geopolitical tensions, especially those stemming from conflicts in the Middle East, have kept market sentiment cautious. Additionally, fading hopes for early rate cuts by global central banks have limited optimism in the market. This has contributed to a minor pullback in equity markets and supported the safe-haven appeal of the USD.

The Federal Reserve’s hawkish outlook, as indicated in the minutes of the late January FOMC meeting, has added to the bearish sentiment on the AUD/USD pair. There is uncertainty about how long borrowing costs should remain at current levels to bring down inflation to the central bank’s target of 2%. Comments from influential Fed policymakers have also suggested that the US central bank is not in a rush to cut interest rates.

Market Outlook

With no major economic data releases due from the US on Friday, the focus remains on US bond yields to determine the direction of the USD. The broader risk sentiment in the market will likely drive demand for safe-haven assets, such as the USD, which may continue to weigh on the AUD/USD pair in the near term.

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