AUD/USD flirts with daily high, around 0.7125-30 region amid risk-on mood

• AUD/USD gained some positive traction on Tuesday and snapped two days of the losing streak.
• The risk-on mood undermined the safe-haven USD and benefitted the perceived riskier aussie.
• The Fed’s hawkish outlook should limit the USD downside and cap gains amid COVID-19 woes.

The AUD/USD pair maintained its bid tone through the first half of the European session and was last seen hovering near the daily top, around the 0.7125-30 region.

A turnaround in the global risk sentiment – as depicted by a generally positive tone around the equity markets – undermined the safe-haven US dollar. This, in turn, was seen as a key factor that benefitted the perceived riskier aussie and assisted the AUD/USD pair to reverse the overnight slide to a nearly two-week low.

The pair, for now, has snapped two successive days of the losing streak, though any further positive move still seems elusive amid the worsening COVID-19 situation in Australia. In fact, the number of cases in Australia's largest state by population – New South Wales – surged past 3,000 on Tuesday for the first time.

Moreover, concerns about the potential economic fallout from the new Omicron coronavirus variant might keep a lid on the optimistic move in the markets. Apart from this, the Fed's hawkish outlook should act as a tailwind for the greenback and hold back traders from placing aggressive bullish bets around the AUD/USD pair.

The fundamental backdrop favours bearish traders, though repeated failures to find acceptance below the 0.7100 mark and the subsequent move up warrants some caution. In the absence of any major market-moving economic releases, it will be prudent to wait for a strong follow-through buying before placing fresh bullish bets.

Technical levels to watch