AUD/USD pares modest intraday gains, remains below mid-0.7400s ahead of Fed

• Upbeat Chinese PMI, renewed USD weakness assisted AUD/USD to gain traction on Wednesday.
• The USD bulls seemed unimpressed and largely shrugged off stronger than expected ADP report.
• Investors seemed reluctant ahead of the highly-anticipated FOMC monetary policy decision.

The AUD/USD pair traded with a mild positive bias through the early North American session, albeit seemed struggling to capitalize on the move beyond mid-0.7400s.

The pair gained some positive traction on Wednesday and recovered a part of the previous day's heavy losses, triggered by a less hawkish Reserve Bank of Australia (RBA). Upbeat Chinese's macro data extended some support to the aussie, which, along with the emergence of fresh selling around the US dollar provided a modest lift to the AUD/USD pair.

Meanwhile, the intraday USD decline lacked any obvious fundamental catalyst and remained limited amid expectations for an early policy tightening by the Fed. Apart from this, a better-than-expected ADP report, showing that the US private-sector employers added 571K jobs in October, acted as a tailwind for the greenback and capped gains for the AUD/USD pair.

The downside, however, remains cushioned, at least for the time being, as investors seemed reluctant to place aggressive bets ahead of the key central bank event risk. The Fed is scheduled to announce its monetary policy decision later during the US session and is widely expected to begin tapering its $120 billion-a-month bond purchase program.

The markets have fully priced in the expected move, suggesting that the focus will be on the monetary 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 would start raising interest rates, which will play a key role in influencing the greenback.

On the other hand, the RBA was not very concerned about inflation on Tuesday and Governor Philip Lowe downplayed expectations for lift-off in 2022. The diverging central bank policy outlooks favour bearish traders and support prospects for an extension of the rejection slide from a technically significant 200-day SMA tested last week.

Technical levels to watch