- AUD/USD gained strong positive traction on Tuesday and shot to over a two-week high.
- The prevalent USD selling bias and hawkish RBA meeting minutes remained supportive.
- Descending trend-channel breakout supports prospects for additional near-term gains.
The AUD/USD pair caught aggressive bids on Tuesday and built on its recent recovery move from a two-year low, around the 0.6680 region touched last week. The momentum lifted spot prices to over a two-week high during the first half of the European session, with bulls now awaiting sustained strength beyond the 0.6900 mark.
The US dollar prolonged its corrective pullback from a two-decade high and continued losing ground for the third straight day. In fact, the USD Index dropped to its lowest level since July 6 amid receding bets for a 100 bps rate hike move by the Federal Reserve in July. This, in turn, was seen as a key factor that acted as a tailwind for the AUD/USD pair.
The Australian dollar drew additional support from the unsurprisingly hawkish Reserve Bank of Australia meeting minutes. The RBA noted that the current level of the cash rate is well below the lower range of estimates for the nominal neutral rate. This suggests that further increases in interest rates will be needed to return inflation to the target over time.
Apart from this, signs of stability in the financial markets further benefitted the risk-sensitive aussie. Tuesday's strong move up could further be attributed to some technical buying above the top boundary of a one-month-old descending trend channel. This might already have set the stage for a further near-term appreciating move for the AUD/USD pair.
That said, growing fears about a possible global recession might continue to weigh on investors' sentiment and limit any further losses for the safe-haven USD, at least for the time being. Apart from this, fresh COVID-19 restrictions in China warrant some caution before placing aggressive bullish bets around the China-proxy Australian dollar.
Market participants now look forward to the US housing market data – Building Permits and Housing Starts – due for release later during the early North American session. Traders would further take cues from the broader market risk sentiment, which could drive the USD demand and produce short-term opportunities around the AUD/USD pair.