AUD/USD inches back closer to post-RBA swing high ahead of US macro data/FOMC

• AUD/USD attracted some buying for the second successive day on Wednesday.
• RBA’s hawkish rate hike, upbeat domestic data extended support to the aussie.
• A positive risk tone undermined the safe-haven USD and remained supportive.
• Investors eye the US ADP report, ISM PMI ahead of the FOMC policy decision.

The AUD/USD pair built on its steady intraday ascent and climbed to a fresh daily high, around the 0.7135 region heading into the North American session.

A combination of supporting factors assisted the AUD/USD pair to gain positive traction for the second successive day on Wednesday and inch back closer to the overnight swing high. Against the backdrop of a more hawkish rate hike by the Reserve Bank of Australia, upbeat domestic macro data extended some support to the aussie. It is worth recalling that the RBA on Tuesday surprised markets and raised the official cash rate by 25 bps from a record low of 0.10% to 0.35%, and also signalled more rate hikes ahead. Apart from this, subdued US dollar price action turned out to be another factor that acted as a tailwind for spot prices.

Given that the Fed's anticipated move to hike interest rates is fully priced in, a positive tone around the US equity futures undermined the safe-haven buck and benefitted the perceived riskier aussie. The USD downtick, however, remains cushioned amid expectations that the Fed would adopt a more aggressive policy response to curb soaring inflation and lift the benchmark interest rate to around 3.0% by the end of the year. This was reinforced by elevated US Treasury bond yields, which should act as a tailwind for the greenback and keep a lid on any further gains for the AUD/USD pair ahead of the highly-anticipated FOMC decision.

The US central bank is widely expected to raise benchmark interest rates by 50 bps and lay down its plans to start shrinking its massive, near $9 trillion balance sheet. Hence, the market focus will remain on the accompanying policy statement to see if the Fed would hike rates further even if the economy weakens. This, along with Fed Chair Jerome Powell's comments at the post-meeting conference, will play a key in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the AUD/USD pair.

In the meantime, traders on Wednesday will take cues from the US economic docket, featuring the releases of the ADP report on private-sector employment and ISM Services PMI. Apart from this, the broader market risk sentiment would drive the USD demand and produce some trading opportunities around the AUD/USD pair. That said, investors might prefer to wait on the sidelines heading into the key central bank event risk, warranting some caution before placing aggressive bets.

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