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AUD/USD Gains New Weekly High, More Highs Before FOMC Looks Limited

A Sharp Recovery

The AUD/USD trading pair gained a bit higher in the early European session on Wednesday as it hit a new weekly record around the 0.7175-0.7180 zones.

AUD/USD price chart. Source TradingView

While traders overlooked milder than expected inflation in China, the AUD/USD pair drew a new kind of buying on Wednesday and consolidated on the rebound, which took place overnight from the 0.7100 sites. A wide-range positive risk-on tone keeps putting the safe haven American dollar under a measure of control which became a major factor played to the advantage of the more risky Australian dollar.

The general risk sentiment was very well encouraged by dissipating fears over a full-scale military confrontation between Russia and Western countries because of Ukraine. Meanwhile, Russia has announced that some of its troops have begun to return to their bases after completing drills near the border with Ukraine, thereby easing fears over a major military offensive and sparked a fresh sequence of risk-on transactions.

The possibility of a faster monetary policy tightening by the Federal Reserve should act as an aid for the dollar to fly higher and cap the increase of the trading pair. As a matter of fact, the markets have priced in the likelihood of a 50 basis point Federal Reserve interest rate increase in its March meeting. This was further reinforced by increased Treasury yields which should be lending support to the dollar.  

Therefore, the markets’ focus is now on the Federal Open Market Committee meeting report due to be published on Wednesday. It will be scrutinized for new indications about the possible momentum of the Federal Reserve’s monetary policy tightening sequence. While waiting for that, traders might want to be on the side, needing some careful measures for aggressive bulls and positioning themselves for further incoming gains.

Unresolved Matters

On economic reports, the American economic case list will feature the publication of retail sales numbers for the month early in the North American session.  This, alongside the American bond yields, is looked out for as an influence to more US dollar demands. Aside from this, the general market risk-on sentiment might create some trading leverages to surround the AUD/USD trading pair.

The trading pair had suffered a setback on Tuesday during the Asian session while it fought hard to remain in its daily gains for the first time after four days. With that slip, the pair incurred a loss from a 50% Fibonacci retracement in January moves and on the 21-days DMA.

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