AUD/USD eases from highs and nears 0.6700 in hesitant markets

Australian Dollar’s recovery has been capped at the 0.6740 area on Tuesday, and the pair retreated during the European session to trade at the 0.6715 area at the time of writing, practically flat on the daily chart.

The Aussie is giving away gains on Tuesday as the US Dollar strengthens following Monday’s reversal. Investors are reluctant to take directional bets on the US Dollar ahead of a string of key US unemployment figures due later this week, which might help clarify the US Federal Reserve’s near-term path.

US data released on Monday showed that manufacturing activity contracted at the fastest pace in the last 14 months, as measured by the ISM Services Purchasing Managers’ Index, which sent the US Dollar tumbling across the board.

US data strengthens Fed doves' views

December's ISM Manufacturing PMI dropped to 47.9, from 48.2 in November, against market expectations of a slight improvement to 48.3. New orders remained well within contraction figures while prices kept growing at a steady pace, altogether, painting a grim picture of the outlook of factory activity in the US.

Furthermore, Minneapolis Fed President Neel Kashkari leaned dovish, warning about the risks of higher unemployment, which reinforced the markets’ view that the Fed might be forced to cut rates more than once this year.

In Australia, the hot consumer inflation figures seen in December have cemented market expectations that the RBA might be the first major central bank to hike 1 rates after the recent global easing cycle. In this context, Tuesday's Australian S&P Global Services PMI, and the monthly Consumer Price Index, due on Wednesday, will be observed with particular interest to confirm those views.