AUD/USD remains capped below the 0.7000 level, the decline seems supported by the weakness of the dollar

• AUD/USD attracts some buyers for the second day in a row, though it lacks bullish conviction.
• Expectations of a less aggressive Fed and falling US bond yields weigh on the USD and support the pair.
• Looming recessionary risks and a cautious climate weigh on the risk-sensitive Aussie.

He AUD/USD extends the previous day’s strong gains and rises for the second day in a row on Wednesday. However, the pair seems to have a hard time capitalizing on the move and remains below the psychological level of 0.7000 during the first half of the European session.

Australian dollar continues to get some support from hawkish RBA outlook, which indicate that further rate hikes will be necessary to ensure that inflation returns to its target. Apart from this, the appearance of new selling around the US dollar turns out to be another factor that benefits the AUD/USD pair.

Against the background of the upbeat US NFP report, Fed Chairman, Jerome Powell acknowledged Tuesday that interest rates may have to rise more than expected if the economy stays strong. However, Powell reiterated that the disinflation process was underway and fueled speculation that interest rates might not go much higher..

The revival of expectations of an imminent pause in the Fed’s tightening cycle triggered a further decline in US Treasury yields, which in turn weighed on the dollar and supported the AUD. /USD. Having said that, generally weaker tone in equity markets prevents pair bulls from taking new positions around the AUDsensitive to risk.

Market sentiment remains fragile in a context of concern about economic difficulties stemming from the continued rise in borrowing costs, the COVID-19 outbreak in China and the prolongation of the war between Russia and Ukraine. Apart from this, fears of worsening US-China relations further dampen investor appetite for riskier assets and constrain the AUD/USD pair.

This mixed background makes it prudent to wait for continuation buying before confirming that the recent pullback from the highest since June 2022 has come to an end. In the absence of market-relevant US macroeconomic data, traders will follow speeches by influential FOMC members on Wednesday.

AUD/USD technical levels