AUD/USD Climbs as Treasury Yields Retreat and Fed Hike Odds Diminish

The Australian Dollar edged higher against the US Dollar on Tuesday, with the AUD/USD pair rising 0.13% to trade near 0.6980. This move came as US Treasury yields retreated slightly, with the 10-year yield hovering around 5.29%, down from a recent peak of 5.349%. The US Dollar Index also slipped to about 101.87, easing from its year-to-date high of 102.53.

Recent weaker US economic data, including softer Nonfarm Payrolls and Personal Consumption Expenditures inflation figures, has reduced the likelihood of further Federal Reserve rate hikes in October. The CME FedWatch tool currently places the probability of unchanged rates at 78%, though a December hike remains a possibility. Traders are now awaiting the Federal Open Market Committee Minutes due Wednesday for further guidance.

In Australia, money markets are pricing in around a 20% chance of a Reserve Bank of Australia rate hike in November, leaving the AUD/USD sensitive to US rate movements. Technically, the pair remains under pressure, trading below key moving averages at 0.7045 and 0.7112, with support at 0.6965 and resistance at 0.7020, 0.7075, and 0.7140.

Derivative traders are advised to prepare for increased volatility as the market reacts to shifting US Treasury yields. The current yield spread between US and Australian 10-year bonds favors the US Dollar, suggesting that the Australian Dollar's recent recovery may be unsustainable. A break below 0.6965 could accelerate a decline toward 0.6900, while resistance levels remain a barrier to further upside.