- AUD / USD gains positive traction on Tuesday and moves further away from multi-week lows.
- Risk appetite weighs on the safe haven USD and benefits the higher perceived risk AUD.
- The optimistic expectations of the Fed and the rebound in US bond yields should limit the decline in the USD and limit the pair’s gains.
The pair AUD/USD moves higher during the European session on Tuesday, staying near two-day highs around the 0.7275-80 region.
The pair has built on the modest bounce the day before from the 0.7220 region, at multi-week lows, and gained some positive traction during the first half of trading action on Tuesday. Risk appetite in the markets has weighed on the safe-haven U.S. dollar, which has been seen as a key factor that has benefited the higher perceived risk Australian dollar.
In the meantime, bulls appear unaffected and have largely ignored the RBA meeting minutes, reiterating that conditions for a rate hike will not be met until at least 2024. The Australian central bank also expressed concern that the Delta variant of the coronavirus could slow the recovery, although it expects strong growth to resume next year.
Having said that, fears over China’s Evergrande troubles should limit optimism. Aside from this, expectations of an imminent Fed announcement and a good rally in US Treasury yields should act as a tailwind for the USD. This could help limit the gains for the AUD / USD pair.
Investors could also refrain from opening aggressive positions and prefer expect a new catalyst from the outcome of a two-day FOMC meeting starting this Tuesday. Therefore, it will be wise to wait for some continuation buying before confirming that the recent pullback from the highest level since mid-July is over.
The Fed is due to announce its monetary policy decision on Wednesday and investors will look for clues as to the likely timing of the downsizing plan. Apart from this, the latest economic projections and the dotted chart will play a key role in influencing short-term USD price dynamics and providing further directional momentum to the AUD / USD pair.
AUD / USD technical levels