• AUD/USD trims a part of its strong intraday gains to the highest level since August.
• The risk-off impulse benefits the safe-haven USD and caps the risk-sensitive Aussie.
• Bets for further rate hikes by the RBA should limit any deeper pullback for the pair.

The AUD/USD pair retreats nearly 50 pips from its highest level since mid-August touched earlier this Wednesday and is currently placed around the 0.7075 area, still up over 0.40% for the day.

A fresh wave of the global risk-aversion trade drives some haven flows towards the US Dollar and turns out to be a key factor acting as a headwind for the risk-sensitive Aussie. The market sentiment remains fragile amid worries about the economic headwinds stemming from the worst yet COVID-19 outbreak in China. Apart from this, the protracted Russia-Ukraine war has been fueling recession fears and tempers investors' appetite for perceived riskier assets.

The global flight to safety, along with the prospects for a less aggressive policy tightening by the Fed, exert some downward pressure on the US Treasury bond yields. In fact, the CME's FedWatch Tool points to over a 90% probability for a smaller 25 bps rate hike at the next FOMC meeting that concludes on February 1.  This could keep a lid on any meaningful upside for the greenback and help limit any meaningful corrective pullback for the AUD/USD pair.

Moreover, the stronger Australian consumer inflation figures released earlier this Wednesday gives the Reserve Bank of Australia (RBA) reasons to keep raising interest rates. This should further contribute to limiting the downside for the AUD/USD pair. Hence, any subsequent pullback might still be seen as a buying opportunity, warranting some caution for bearish traders in the absence of any relevant market-moving economic releases from the United States (US).

Technical levels to watch