- The prevailing selling bias around the USD helps AUD/USD gain traction for the third day in a row.
- The dovish stance of the RBA prevents the bulls from opening aggressive positions and limits the pair’s upside.
- Investors await the release of the US ADP report to take advantage of some short-term opportunities.
The pair AUD/USD trades with a slight positive bias at the start of the European session on Wednesday, hovering around the daily high around the region of 0.7140.
The pair built on its recent strong recovery move from the lowest level since July 2020 touched last week and advanced for the third day in a row on Wednesday. Fed officials downplayed the prospect of a 50 basis point interest rate hike in March.which kept the US dollar bulls on the defensive and offered some support to the AUD/USD pair.
Indeed, St. Louis Fed President James Bullard said on Tuesday he would argue for hikes in March, May and June, but did not favor a 50 basis point rate hike. Also, Philadelphia Fed President Patrick Harker said he supports a 25 basis point rate hike in March and is slightly less convinced of a 50 point rate hike.
Apart of this, a positive tone around equity markets further weighed on the safe-haven USD and benefited the perceived riskier Australian dollar. That said, dovish remarks from Reserve Bank of Australia Governor Phillip Lowe capped any significant gains for the AUD/USD pair.
Speaking at the National Press Club, Lowe said the end of QE does not mean an imminent rate hike and reiterated that a rise in inflation does not require an immediate response.. This comes after the RBA indicated on Tuesday that it would be patient in terms of raising interest rates despite rising inflation.
The fundamental background warrants some caution for aggressive bulls and makes it prudent to wait for a continuation of strong buying before confirming that AUD/USD has bottomed. Therefore, any subsequent move to the upside could still be seen as a selling opportunity and risks ending quite quickly.
Market participants are now awaiting the release of ADP’s US private sector employment report due at the start of the American session. The data could weigh on USD price action, which coupled with broader market risk sentiment should provide some lift to the AUD/USD pair.
AUD/USD technical levels
Source: Fx Street
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