AUD/USD refreshes daily tops near mid-0.7400s, focus remains on FOMC

• Upbeat Chinese data assisted AUD/USD to gain some positive traction on Wednesday.
• A subdued USD demand remained supportive, though the uptick lacked follow-through.
• Investors seemed reluctant to place aggressive bets ahead of the critical FOMC decision.

The AUD/USD pair edged higher through the early part of the European session and climbed to fresh daily tops, around mid-0.7400s in the last hour.

Having found some support near the 0.7420 area, the AUD/USD pair managed to stage a modest recovery on Wednesday and recovered a part of the previous day's RBA-inspired slump to two-week lows. China's Caixin Services PMI unexpectedly rose to 53.8 in October - the highest since July - and turned out to be a key factor that benefitted the China-proxy Australian dollar. This, along with a subdued US dollar price action provided a modest lift to the major, though any meaningful upside still seems elusive.

Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflationary pressures. On the other hand, the RBA on Tuesday was not very concerned about inflation and Governor Philip Lowe downplayed expectations for lift-off in 2022. The divergence in monetary policy outlooks might hold investors from placing aggressive bets ahead of the outcome of the critical FOMC monetary policy meeting. This, in turn, warrants some caution for bullish traders.

The Fed is scheduled to announce its decision later during the US session and is widely expected to begin tapering its $120 billion-a-month asset purchase program. The key focus, however, will be on the accompanying policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference. Investors will look for clues about the likely timing when the Fed will hike interest rates, which will influence the USD price dynamics and provide a fresh directional impetus to the AUD/USD pair.

In the meantime, traders might take cues from the US economic docket, featuring the release of the ADP report on private-sector employment and ISM Services PMI. The data might produce some short-term trading opportunities, though the reaction is more likely to be limited ahead of the key central bank event risk.

Technical levels to watch