AUD/USD holds steady near weekly high around 0.7140 area, lacks bullish conviction

• The prevalent USD selling bias assisted AUD/USD to gain traction for the third successive day.
• The RBA’s dovish stance held back bulls from placing aggressive bets and capped the upside.
• Investors now look forward to the US ADP report for some short-term trading opportunities.

The AUD/USD pair traded with a mild positive bias through the early European session and was last seen hovering near the daily high, around the 0.7140 region.

The pair build on its recent strong recovery move from the lowest level since July 2020 touched last week and edged higher for the third successive day on Wednesday. Fed officials downplayed the prospect of a 50 bps hike in March, which, kept the US dollar bulls on the defensive and extended some support to the AUD/USD pair.

In fact, St. Louis Fed President James Bullard said on Tuesday that he would argue for rate rises in March, May and June, but did not favour a 50 bps hike. Adding to this, Philadelphia Fed President Patrick Harker said that he supports a 25 bps increase in March and is a little less convinced for a 50 bps hike.

Apart from this, a generally positive tone around the equity markets further undermined the greenback's relative safe-haven status and benefitted the perceived riskier aussie. That said, earlier dovish remarks by the Reserve Bank of Australia, Governor Phillip Lowe, kept a lid on any meaningful gains for the AUD/USD pair.

Speaking at the National Press Club, Lowe said that the end of QE doesn't mean cash-rate rise is imminent and reiterated that a rise in inflation does not require an immediate response. This comes after the RBA on Tuesday indicated that it would be patient in terms of raising interest rates despite soaring inflation.

The fundamental backdrop warrants some caution for aggressive bullish traders and makes it prudent to wait for a strong follow-through buying before confirming that AUD/USD pair has bottomed out. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Market participants now look forward to the release of the US ADP report on private-sector employment, due later during the early North American session. The data might influence the USD price dynamics, which, along with the broader market risk sentiment, should provide some impetus to the AUD/USD pair

Technical levels to watch