AUD/USD climbs further beyond mid-year 0.6700, near two-week high ahead of US retail sales

• AUD/USD attracts some trailing buyers and climbs to a near two-week high.
• 50 bps Fed rate cuts bets and positive risk tone undercuts USD lending support.
• Traders are looking to US retail sales data for some momentum ahead of Wednesday’s Fed.

The AUD/USD pair gained traction for a second day in a row on Tuesday – also marking the fourth day of a positive move – and climbed to a one-and-a-half-week high in the early part of the European session. Spot prices are currently trading above mid-year 0.6700, up about 0.15% on the day, as investors look to the outcome of Wednesday’s two-day Federal Open Market Committee (FOMC) meeting for a new directional impulse.

Heading into the key risk of a central bank event, the US dollar (USD) consolidates recent heavy losses to its lowest level since July 2023 amid bets on an outsized 50 basis point rate cut by the Federal Reserve (Fed). This, along with the dim outlook from the Reserve Bank of Australia (RBA) and a generally positive tone around equity markets, is proving to be a key factor benefiting the risk-sensitive Aussie and lending support to the AUD/USD pair.

With the latest leg up, spot prices are now up nearly 150 pips from the vicinity of the all-important 200-day Simple Moving Average (SMA) support around the 0.6620 region, or a near four-week low reached last Wednesday . Additionally, the fundamental backdrop appears tilted in favor of the USD bears and suggests that the path of least resistance for the AUD/USD pair is to the upside. That said, concerns about a slowdown in China could act as a headwind.

In fact, a string of unfavorable Chinese data released over the weekend indicated greater economic weakness and challenges in reaching the official target of around 5% GDP growth rate in 2024. This, in turn, could act as a headwind for China’s proxy. Australian dollar (USD). Traders may also prefer to wait for more clues on the Fed’s rate cut path, warranting some caution before placing new bullish bets around the AUD/USD pair.

Next up is the release of monthly US retail sales figures which, along with US bond yields and broader risk-on sentiment, will boost USD demand and provide a boost to the pair. Meanwhile, market reaction to US macro data is more likely to be limited as focus remains on the Fed’s crucial policy decision.