• AUD/USD extends Friday’s recovery moves from the yearly low.
• Market sentiment dwindles as inflation concerns contrast with the risk-negative catalysts, hawkish Fed bets.
• Aussie consumer sentiment figures, upbeat stocks, yields favored buyers earlier.
• RBA Minutes need to defend the rate hike trajectory to keep buyers hopeful.

AUD/USD takes bids to refresh intraday high near 0.6735, extending the corrective bounce from the yearly low during Tuesday’s Asian session. In doing so, the Aussie pair part ways from the typical pre-event caution amid a light calendar and mixed concerns.

That said, the recently flashed Australia weekly Consumer Confidence, per ANZ Roy Morgan, rose 0.4% week-on-week but failed to impress the AUD/USD bulls as traders fear the Reserve Bank of Australia’s (RBA) inability to defend the hawkish rate moves.

On the same line, the recently downbeat inflation expectations and the market’s preparations for the RBA moves, as well as the People’s Bank of China’s (PBOC) action, also favored the AUDUSD buyers previously.

It’s worth noting that the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped for the third consecutive day to a two-month low near 2.34% by the end of Monday’s North American trading session. More importantly, the 5-year breakeven inflation rate per the FRED data dropped to the lowest levels since September 2021, at 2.44% at the latest. The same raised concerns about the market’s surprise reaction to the hawkish Fed bets. Given the slump in the US inflation expectations, the fears of a short squeeze in the Aussie pair gain major attention and help the AUD/USD prices to remain firmer.

Even so, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seemed to weigh on the AUD/USD price ahead of the key monetary policy announcements. In a response to US President Biden’s comments, China’s Foreign Ministry said on Monday that Beijing “deplores and firmly opposes this and has lodged stern representations.”

Amid these plays, the CME’s FedWatch tool hints at 82% chance of the 75 basis points of a Fed rate hike during Wednesday’s monetary policy meeting. Also, the tool signals around 18% odds favoring the full one percent upside in the rate by the Fed. It should be observed that Wall Street closed positive and helps S&P 500 Futures to print mild gains as traders brace for the full markets. Further, the US Treasury yields are also positive around the multi-day top.

Moving on, RBA Minutes and the PBOC’s anticipated rate cut could entertain AUD/USD buyers ahead of the second-tier US housing market data. However, major attention should be given to Wednesday’s Federal Open Market Committee (FOMC).

Technical analysis

AUD/USD fades bounce off nine-week-old ascending support line, around 0.6700 by the press time, amid bearish MACD signals and downbeat RSI (14), not oversold, which in turn suggests the Aussie pair’s further weakness.