AUD/USD clings to gains comfortably above 0.6700 ahead of US data, Powell’s speech

• AUD/USD gains positive traction for the second straight day amid renewed USD selling.
• Bets for less aggressive Fed rate hikes and slugging US bond yields weigh on the buck.
• China’s COVID-19 jitters could act as a headwind for the pair ahead of Powell’s speech.

The AUD/USD pair attracts some buying for the second successive day on Wednesday and stick to its gains through the first half of the European session. The pair is currently placed near the top end of its daily trading range, around the 0.6720-0.6725 region, and remains well supported by the emergence of fresh selling around the US Dollar.

The prospects for a less aggressive policy tightening by the Fed and bets for a relatively smaller 50 bps rate hike in December exert some pressure on the US Treasury bond yields. This, along with signs of stability in the financial markets, weighs on the safe-haven greenback and offers support to the risk-sensitive Aussie. The intraday uptick, meanwhile, seems rather unaffected by softer Australian consumer inflation figures and Chinese PMI.

The Australian Bureau of Statistics reported that the domestic Consumer Price Index (CPI) rose 6.9% during the 12 months to October, missing consensus estimates for a reading of 7.4%. This was seen as a hint that inflation might be peaking, which could mean that interest rates will not have to rise as far as expected. Furthermore, official data from China showed that manufacturing and services activity shrank to seven-month lows in November.

The disappointing data, however, was offset by speculation that the Chinese government will scale back its strict anti-COVID policies to prevent more protests. That said, concerns about economic headwinds stemming from a new COVID-19 outbreak in China should keep a lid on any optimism in the markets. This, in turn, might hold back traders from placing bullish bets around the AUD/USD pair ahead of Fed Chair Jerome Powell's scheduled speech.

Investors will look for fresh clues about the future rate-hike path, which will influence the USD and provide some impetus to the AUD/USD pair. In the meantime, traders on Wednesday will take cues from the US economic docket, featuring the release of the ADP report on private-sector employment, the Prelim Q3 GDP report and JOLTS Job Openings data. This, along with the broader risk sentiment, might produce short-term trading opportunities.

Technical levels to watch