AUD/USD rebounds from a near two-month low, upside potential seems limited

• A subdued USD price action assisted AUD/USD to reverse an early dip to sub-0.7200 levels.
• Hawkish Fed expectations should limit any USD decline and cap the upside for the major.
• Investors now await the release of US macro data and FOMC minutes for a fresh impetus.

The AUD/USD pair reversed an Asian session dip to the lowest level since early October and was last seen hovering near the top end of its daily trading range, around the 0.7220 area.

Following the previous day's two-way/directionless moves, the AUD/USD pair witnessed some selling and dropped to sub-0.7200 levels during the early part of the trading action on Wednesday. The US dollar extended its consolidative price action for the second successive day amid retreating US Treasury bond yields. This, in turn, was seen as a key factor that assisted the pair to find some support at lower levels.

That said, any meaningful recovery still seems elusive amid growing market acceptance above an early policy tightening by the Fed. Investors seem convinced that the US central bank would be forced to adopt a more aggressive policy response to contain stubbornly high inflationary pressures. The market bets were boosted further after Jerome Powell renomination to the role of Federal Reserve chair on Monday.

Conversely, the Reserve Bank of Australia (RBA) has made every effort to sound dovish in an attempt to push back expectations for a rate hike as early as next year. The divergence in monetary policy stance between the RBA and the Fed should further collaborate to cap the upside for the AUD/USD pair. Hence, it will be prudent to wait for a strong follow-through buying before positioning for any further gains.

Market participants now look forward to the US economic docket, highlighting the release of the Prelim (second estimate) US Q3 GDP, Durable Goods Orders and Core PCE Price Index. This, along with the FOMC meeting minutes, will influence the USD and allow traders to grab some short-term opportunities around the AUD/USD pair.

Technical levels to watch