AUD/USD consolidates intraday gains near mid-0.7100s ahead of US data

• AUD/USD gained some positive traction on Wednesday and recovered further from the YTD low.
• A generally positive risk tone benefitted the perceived riskier aussie amid a subdued USD demand.
• Rising Fed rate hike bets acted as a tailwind for the greenback and capped the upside for the pair.

The AUD/USD pair maintained its bid tone heading into the North American session, albeit has retreated a few pips from the weekly high touched earlier this Wednesday. The pair was last seen trading around mid-0.7100s, still up 0.40% for the day.

The global risk sentiment witnessed a positive turnaround as investors seem convinced that the latest COVID-19 variant would not derail the economic recovery. This was evident from a strong rally in the equity markets, which, in turn, benefitted the perceived riskier aussie. The upbeat market mood was further supported by the latest comments from the World Health Organization (WHO) official, saying that some of the early indications are that most Omicron cases are mild.

The official further added that there is no need to develop a new vaccine and makers should only do minor adjustments to the current vaccines. Apart from this, a subdued US dollar price action allowed the AUD/USD pair to build on the overnight recovery from the 0.7065-60 area, or the lowest level since November 2020. That said, increasing bets for a more aggressive policy tightening by the Fed acted as a tailwind for the greenback and capped any meaningful upside for the major.

In fact, the money markets started pricing in the possibility of at least a 50 bps rate hike by the end of 2022 in reaction to the overnight hawkish comments by Fed Chair Jerome Powell. Testifying before the Senate Banking Committee, Powell said that it is appropriate to consider wrapping up the tapering of asset purchases, perhaps a few months sooner. Powell also noted that it's time to retire the word transitory as the risk of persistently higher inflationary pressures has increased.

On the other hand, the Reserve Bank of Australia (RBA) has adopted a more dovish stance and made every effort to push back expectations for a rate hike as early as next year. The RBA-Fed divergent monetary policy outlooks further held back traders from placing bullish bets. This, in turn, warrants some caution before confirming that the AUD/USD pair has formed a near-term base and positioning for any meaningful appreciating move.

Next on tap will be the release of the US ADP report on private-sector employment, which will be followed by the ISM Manufacturing PMI. Apart from this, Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment for some short-term opportunities.

Technical levels to watch