AUD/USD clings to strong recovery gains near daily peak, around mid-0.7100s

• AUD/USD witnessed a short-covering bounce amid a sharp USD slide from the multi-year high.
• The risk-on impulse undermined the safe-haven USD and benefitted the perceived riskier aussie.
• Any further upside seems limited ahead of the RBA/FOMC monetary policy decisions next week.

The AUD/USD pair built on its steady intraday recovery move through the first half of the European session and climbed to a fresh daily high, around the 0.7160 area in the last hour.

The pair gained strong positive traction on the last day of the week and moved further away from its lowest level since early February, around mid-0.7000s touched the previous day. The US dollar witnessed aggressive long-unwinding trade and for now, seems to have snapped a six-day winning streak to the five-year peak. This, along with the risk-on mood, extended support to the perceived riskier aussie and triggered some short-covering around the AUD/USD pair.

Apart from this, a goodish pickup in commodity prices offered additional support to the resources-linked Australian dollar amid expectations for an early rate hike by the Reserve Bank of Australia. The Australian Bureau of Statistics reported on Wednesday that consumer prices surged at the fastest annual pace in two decades during the first quarter. The data fueled speculations that the RBA could start the policy tightening cycle as soon as next week.

It, however, remains to be seen if bulls are able to capitalize on the move or the AUD/USD pair meets with a fresh supply at higher levels amid the prospects for rapid interest rate hikes in the US. The markets have been pricing in a 50 bps rate hike at the upcoming FOMC meeting on May 3-4. The US central bank is also expected to continue tightening its monetary policy when it meets again in June and July, and ultimately lift rates to around 3.0% by the end of the year.

Hence, the market focus will remain glued to the upcoming central bank event risks - the RBA policy update on Tuesday and the highly anticipated FOMC decision on Wednesday. In the meantime, traders might refrain from placing aggressive bets, making it prudent to wait for some follow-through buying before positioning for any further gains. Nevertheless, the AUD/USD pair seems all set to end in the red for the fifth successive week and remains at the mercy of the USD price dynamics.

Technical levels to watch