AUD/USD gained positive traction on Tuesday and moved further away from multi-week lows.
The risk-on impulse weighed on the safe-haven USD and benefitted the perceived riskier aussie.
Hawkish Fed expectations, rebounding US bond yields should limit the USD slide and cap gains.
The AUD/USD pair maintained its bid tone through the early European session and was last seen trading near two-day tops, around the 0.7275-80 region.
The pair built on the previous day’s modest bounce from the 0.7220 region, or multi-week lows and gained some positive traction through the first half of the trading action on Tuesday. The risk-on impulse in the markets weighed on the safe-haven US dollar and was seen as a key factor that benefitted the perceived riskier aussie.
Meanwhile, bulls seemed rather unaffected and largely shrugged off dovish sounding RBA meeting minutes, reiterating that conditions for a rate hike will not be met at least until 2024. The Australian central bank also raised concerns that the spread of the Delta variant could slow the recovery, although expects strong growth to resume next year.
That said, fears about the spillover risk from China Evergrande’s troubles should keep a lid on the optimism. Apart from this, expectations for an imminent Fed taper announcement and a goodish pickup in the US Treasury bond yields should act as a tailwind for the greenback. This might further collaborate to cap gains for the AUD/USD pair.
Investors might also refrain from placing aggressive bets, rather prefer to wait for a fresh catalyst from the outcome of a two-day FOMC meeting starting this Tuesday. Hence, it will be prudent to wait for some follow-through buying before confirming that the recent pullback from the highest level since mid-July has run its course.
The Fed is scheduled to announce its policy decision on Wednesday and investors will look for clues about the likely timing of the tapering plan. Apart from this, the latest economic projections/dot plot will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the AUD/USD pair.
Technical levels to watch