- AUD/USD rebounds from one-month lows and snaps a five-day losing streak.
- The dollar’s modest pullback from a two-decade high prompts some short covering around the pair.
- Expectations of an aggressive Fed rate hike should act as a tailwind for the dollar and limit the pair’s gains.
The pair AUD/USD experiences a short-covering bounce on Wednesday and, for the time being, appears to have broken a five-day losing streak to hit a one-month low. The pair maintains its intraday recovery gains during the European session and is now trading near the daily high, just above the 0.6900 level.
Following the recent bull run, which reached a two-decade high, the US dollar witnessed some profit taking on Wednesday, amid a softer tone around US Treasury yields. Also, signs of stability in financial markets further weighed on greenback safe-haven demand and offered some support to the risk-sensitive Aussie.
That said, it seems that there is still no significant recovery amid the expectations that the Federal Reserve will tighten its monetary policy at a faster pace to curb rising inflation. Indeed, Federal Reserve funds futures indicate that the odds are increasing for a big 75 basis point rate hike at the conclusion of the FOMC’s two-day policy meeting on Wednesday and another 75 basis point hike in July.
The prospects of a more aggressive move by the Fed should act as a tailwind for US bond yields and favor USD bulls. Therefore, it will be prudent to wait for strong continuation buying before confirming that the AUD/USD pair has formed a short-term bottom. However, attention remains focused on the FOMC decision, which will be announced later in the American session.
Ahead of the key event, the US monthly retail sales figures, to be released at the start of the American session, could have little influence on the dollar. That being said, the broader market risk sentiment could give the AUD/USD pair some lift and allow investors to take advantage of some short-term opportunities.
AUD/USD technical levels
Source: Fx Street
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