• AUD/USD witnessed some selling during the Asian session, though lacked follow-through.
• A softer risk tone turned out to be a key factor that undermined the perceived riskier aussie.
• A subdued USD price action helped limit losses ahead of the US CPI report/FOMC minutes.

The AUD/USD pair extended the previous day's late pullback from over one-month tops and continued losing ground through the Asian session on Wednesday. The pair dropped to two-day lows, around the 0.7330 region in the last hour, albeit lacked follow-through selling.

The pullback lacked any obvious fundamental catalyst and could be attributed to some profit-taking amid the prevalent cautious mood, which tends to drive flows away from the perceived riskier aussie. Worried about a faster than expected rise in inflation and signs of a slowdown in the global economic recovery have been fueling concerns about stagflation. Apart from this, fears of a spillover from China Evergrand's debt crisis continued weighing on investors' sentiment.

However, the recent widespread rally in commodity prices continued acting as a tailwind for the resource-linked Australian dollar. This, along with a subdued US dollar price action, extended some support to the AUD/USD pair. The ongoing retracement slide in the US Treasury bond yields turned out to be a key factor that kept the USD bulls on the defensive. That said, hawkish Fed expectations should help limit any meaningful downfall for the greenback, at least for now.

Investors seem convinced that the Fed will begin rolling back its massive pandemic-era stimulus as soon as November. The markets have also started pricing in the possibility of an interest rate hike amid risks that the continued surge in crude oil/energy prices will stoke inflation. Hence, the market focus will be on Wednesday's release of the US consumer inflation figures. This will be followed by the FOMC meeting minutes later during the US trading session.

This would play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the AUD/USD pair. In the meantime, the US bond yields and the broader market risk sentiment will be looked upon for some short-term trading opportunities.

Technical levels to watch