AUD/USD climbs to fresh weekly high, upside potential seems limited ahead of FOMC minutes

• AUD/USD gained traction for the second successive day on Wednesday and refreshed weekly high.
• A positive risk tone undermined the safe-haven USD and benefitted the perceived riskier aussie.
• Hawkish Fed expectations, elevated US bond yields should limit the USD losses and cap the pair.
• Investors look forward to the US Retail Sales data for some impetus ahead of the FOMC minutes.

The AUD/USD pair edged higher through the early European session and climbed to a fresh weekly high, around the 0.7175-0.7180 region in the last hour.

As investors looked past softer than expected Chinese inflation figures, the AUD/USD pair attracted fresh buying on Wednesday and built on the overnight goodish rebound from the 0.7100 mark. A generally positive risk tone continued undermining the safe-haven US dollar, which, in turn, was seen as a key factor that benefitted the perceived riskier aussie.

The global risk sentiment remained well supported by receding fears about a full-blown conflict between Russia and the West over Ukraine. Russia said that some of its troops were returning back to bases following exercises near the Ukraine border and eased concerns over a significant military action and triggered a fresh wave of the risk-on trade.

That said, the prospects for a faster policy tightening by the Fed should act as a tailwind for the greenback and cap the upside for the AUD/USD pair. In fact, the markets have been pricing in the possibility of a 50 bps Fed rate hike move in March. This was reinforced by elevated US Treasury bond yields, which should lend support to the buck.

Hence, the market focus remains on the FOMC meeting minutes, due for release later this Thursday, which will be looked upon for fresh clues about the likely pace of the Fed's policy tightening cycle. In the meantime, traders might prefer to wait on the sidelines, warranting some caution for aggressive bullish traders and positioning for any further gains.

On the economic data front, the US economic docket features the release of monthly Retail Sales figures later during the early North American session. This, along with the US bond yields, will influence the USD demand. Apart from this, the broader market risk sentiment could produce some trading opportunities around the AUD/USD pair.

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