On Tuesday, the AUD/USD recovered losses sparked by the RBA and increased to a new high. The persistent USD selling trend and the risk-on impulse support the risk-sensitive Australian dollar. A trading range older than one week indicates a negative consolidation period and calls for caution.

During the early part of the European session, the AUD/USD pair recovered its intraday losses caused by the Reserve Bank of Australia’s smaller-than-expected 25 bps rate rise and soared to more than a one-week high. However, the intraday rise falters due to a lack of further purchasing and stops just before the mid-0.6500s.

Amid a fresh decline in US Treasury bond rates, the US dollar continues its current dramatic corrective drop from a two-decade high set last week. In addition, the risk-on urge is putting further pressure on the safe-haven dollar and pushing flows towards the risk-sensitive Australian dollar.

Looking at the bigger picture, the AUD/USD pair has been fluctuating in a constrained trading range for the last week or two. On intraday charts, the range-bound price action has formed a rectangle and suggests that traders are unsure about the direction of the next leg of a directional move.

The formation might still be characterized as a bearish consolidation phase, given the pattern’s rapid decline from the August monthly swing high. Additionally, while rising from lower levels, technical indicators on the daily chart are still holding in the negative zone.

This shows that the AUD/USD pair’s path of least resistance is to the downside, which calls for caution from bullish traders. Nevertheless, some follow-through purchasing will counteract the negative tendency and pave the way for a significant upward movement.

The AUD/USD pair may continue to rise from its most recent low point in April 2020 to regain the round-figure level of 0.6600. Following this is the resistance area between 0.6621 and 0.6625, over which another round of a short-covering rally may push spot prices as high as 0.6701.

On the other hand, the post-RBA low, which was at mid-0.6400s, currently seems to be protecting the immediate downside before the round 0.6400. If there is a decisive break below, the AUD/USD pair might decline much more, testing the 0.6300 level and the YTD low in the 0.6365-0.6360 range.

USD/AUD 4-hour chart