Ella 
AUD/USD retreated after hitting a more than one-month high around 0.6750-0.6755 earlier this Wednesday and remained subdued in the first half of the European session. Currently trading around 0.6730-0.6735, the spot price is down 0.15% on the day. AUD/USD now seems to have ended a three-day winning streak on the back of a slightly stronger US dollar (USD).
The US dollar index (DXY), which tracks the greenback against a basket of currencies, has recovered from its lowest level since January due to some repositioning trades ahead of the release of the July FOMC meeting minutes later in the US session. Apart from this, the slight deterioration in global risk sentiment has also become another factor in favor of safe-haven currencies and prompted outflows from the Australian dollar (AUD), which is perceived to be riskier.
Meanwhile, the downside for the AUD/USD pair appears limited amid the hawkish stance of the Reserve Bank of Australia (RBA). In fact, the central bank has signaled that it will not hesitate to raise interest rates if there are more upside risks to inflation. This, coupled with the growing rumors of a massive economic stimulus by the Chinese government, could provide a “tailwind” to the Chinese proxy currency AUD, providing some support to AUD/USD.
Moreover, the growing belief that the Federal Reserve (Fed) will start its easing cycle in September and announce a 25 basis point rate cut will limit the dollar’s gains. Traders may also prefer to wait for Fed Chairman Powell’s speech at the Jackson Hall Symposium on Friday to get clues about the central bank’s policy path. In turn, caution is needed before confirming that AUD/USD has peaked in the short term.
Even from a technical perspective, last week’s breakout above the 0.6600 confluence resistance, which includes the very important 200-day and 100-day simple moving averages (SMAs), is in favor of bullish traders. Therefore, any subsequent corrective declines can still be viewed as buying opportunities and are more likely to be limited.
