AUD/USD extends hawkish RBA minutes-inspired recovery from one-month low

• AUD/USD staged a goodish recovery from a one-month low in reaction to hawkish RBA minutes.
• Rising bets for more aggressive Fed rate hikes underpinned the USD and might cap the upside.
• Investors now look forward to the US housing market data, Fedspeak for some trading impetus.

The AUD/USD pair built on its steady intraday ascent through the early European session and climbed to a fresh daily high, around the 0.7380-0.7385 region in the last hour.

The pair attracted some buying near the 0.7340 region, or the 50-day SMA support on Tuesday and has now reversed a major part of the overnight slide to a one-month low. The Reserve Bank of Australia, in the minutes of its April board meeting, warned that the rise in inflation has likely brought forward the timing of the first increase in interest rate since 2010. This, in turn, was seen as a key factor that extended some support to the Australian dollar, though sustained US dollar buying might keep a lid on any meaningful gains for the AUD/USD pair.

In fact, the key USD Index shot to its highest level since April 2020 amid expectations that the Fed would tighten its monetary policy at a faster pace to curb the hottest inflation since 1981. Adding to this, St. Louis President James Bullard said on Monday that the US central bank shouldn’t rule out rate increases of 75 bps. This, along with concerns that the worsening Ukraine crisis would put upward pressure on already high inflation, pushed the US Treasury bond yields to a fresh multi-year peak, which should continue to underpin the greenback.

Nevertheless, the AUD/USD pair, for now, seems to have snapped four successive days of the losing streak and remains at the mercy of the USD price dynamics. That said, it will be prudent to wait for strong follow-through selling before confirming that the recent pullback from the 0.7660 area or the YTD peak has run its course and placing aggressive bullish bets. Market participants now look forward to the US economic docket, featuring the release of Building Permits and Housing Starts later during the early North American session.

Traders will further take cues from a scheduled speech by Chicago Fed President Charles Evans, along with the US bond yields, which will drive the USD demand. Apart from this, the broader risk sentiment should allow traders to grab some short-term trading opportunities around the AUD/USD pair.

Technical levels to watch