• AUD/USD regains positive traction on Tuesday in reaction to the RBA’s hawkish outlook.
• A modest USD downtick provides an additional lift and remains supportive of the move.
• Hawkish Fed expectations could help limit the downside for the buck and cap the major.

The AUD/USD pair catches fresh bids on Tuesday after the Reserve Bank of Australia (RBA) announced its policy decision and sticks to its gains through the first half of the European session. The pair is currently placed just below mid-0.6900s and for now, seems to have snapped a three-day losing streak to a one-month low touched on Monday.

The Australian Dollar strengthens across the board in reaction to the RBA's hawkish outlook, signalling that further rate increases will be needed to ensure that inflation returns to target. It is worth mentioning that the Australian central bank earlier this Tuesday raised its cash rate by 25 bps to a decade-high of 3.35%. Apart from this, a modest US Dollar weakness acts as a tailwind for the AUD/USD pair.

In fact, the USD Index, which tracks the Greenback against a basket of currencies, stalls the post-NFP strong recovery from a nine-month top and is weighed down by a combination of factors. A softer tone surrounding the US Treasury bond yields, along with signs of stability in the equity markets, seem to undermine the safe-haven buck. That said, hawkish Fed expectations help limit any meaningful slide for the USD.

The better-than-expected US monthly employment data released last Friday pointed to the underlying strength in the labor market. This could allow the US central bank to keep raising interest rates going forward, which, in turn, favours the USD bulls. This, in turn, warrants some caution before confirming that the AUD/USD pair's recent pullback from its highest level since June 2022 touched last week has run its course.

Moving ahead, there isn't any relevant market-moving economic data due for release from the US on Tuesday. Hence, the focus will remain glued to Fed Chair Jerome Powell's speech, which will be closely scrutinized for fresh clues about the central bank's future rate-hike path. This, in turn, will play a key role in influencing the USD price dynamics and provide a fresh impetus to the AUD/USD pair later during the US session.

Technical levels to watch