AUD/USD clings to gains near session top, around 0.7125 area amid modest USD weakness

• AUD/USD regained positive traction on Wednesday and reversed the overnight losses.
• A modest USD pullback from a one-week high was seen behind the intraday move up.
• The upside is likely to remain capped ahead of the highly-anticipated FOMC decision.

The AUD/USD pair maintained its bid tone through the early European session and was last seen trading near the daily high, around the 0.7120-25 region.

Having defended the 0.7100 mark on a daily closing basis, the AUD/USD pair regained positive traction on Wednesday and has now reversed a major part of the overnight slide to a one-week low. The uptick seemed unaffected by softer Chinese/Australian macro data and was sponsored by a modest US dollar weakness from a one-week high.

Chinese Retail Sales grew 3.9% YoY in November as against 4.6% estimates and 4.9% previous. Further, China's Fixed Asset Investments rose 5.2% YTD as against 5.4% expected. Separately, the unemployment rate in China edged up to 5.0% from 4.9% and overshadowed slightly better-than-expected Industrial Production data.

This comes on the back of the disappointing release of the Westpac Consumer Confidence from Australia, which dropped to -1.0% in December from +0.6 in the previous month. This, however, was largely offset by some intraday USD selling bias, which was seen as the only factor that contributed to the AUD/USD pair's steady intraday ascent.

That said, the upside potential seems limited, at least for the time being, as investors might refrain from placing aggressive bets heading into the key central bank event risk. The Fed is scheduled to announce its policy decision later during the US session, which will drive the USD and provide a fresh directional impetus to the AUD/USD pair.

In the meantime, traders might take cues from the release of the US monthly Retail Sales figures. The data could influence the USD price dynamics and produce some trading opportunities during the early North American session, though the immediate market reaction is more likely to be short-lived.

Technical levels to watch