AUD/USD climbs to three-week high, around mid-0.6400s amid sustained USD selling

• A combination of supporting factors lifts AUD/USD to a nearly three-week high on Wednesday.
• Hotter-than-expected Australian CPI report boosts the aussie amid sustained USD selling bias.
• Reduced bets for more aggressive Fed rate hikes and sliding US bond yields weigh on the USD.

The AUD/USD pair gains traction for the second successive day on Wednesday and builds on its intraday ascent through the early European session. This also marks the fourth day of a positive move in the previous five and lifts spot prices to a nearly three-week high, around the 0.6450-0.6455 region in the last hour.

The US dollar remains under some selling pressure amid reduced bets for a more aggressive tightening by the Fed, which, in turn, is seen as a key factor pushing the AUD/USD pair higher. In fact, the softer US macro data released on Tuesday pointed to signs of a slowdown in the world's largest economy and might force the US central bank to soften its hawkish stance. This is reinforced by a further pullback in the US Treasury bond yields and keeps the USD bulls on the defensive.

The Australian dollar, on the other hand, draws additional support from hotter-than-expected domestic consumer inflation figures. The Australian Bureau of Statistics (ABS) reported that the headline CPI rose 1.8% in the September quarter and the annual rate shot up to 7.3% - the highest since 1990. The data suggests that the Reserve Bank of Australia may have acted prematurely in slowing the pace of policy tightening in October and will need to raise rates to combat inflation.

The combination of fundamental factors pushes the AUD/USD pair through the 0.6400-0.6410 resistance zone, prompting some technical buying. This might have also set the stage for a further appreciating move. That said, a softer risk tone - amid growing worries about a deeper global economic downturn, might hold back traders from placing aggressive bullish bets around the risk-sensitive aussie. This warrants caution for bulls and positioning for any further gains.

Market participants now look forward to the US economic docket, featuring the release of New Home Sales data later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. The focus will then shift to important US macro releases on Thursday, which should determine the near-term trajectory ahead of the FOMC meeting and the NFP report next week.

Technical levels to watch