AUD/USD Outlook: Seems poised to appreciate further, surpass 0.7000 mark

• AUD/USD catches fresh bids on Wednesday and is supported by a combination of factors.
• The upbeat domestic data lifts the odds for another RBA rate hike and benefits the Aussie.
• The emergence of fresh selling around the USD provides an additional boost to the major.

The AUD/USD pair regains positive traction on Wednesday and reclaims the 0.6900 mark during the Asian session, reversing the previous day's retracement slide. The Australian Dollar draws support from the upbeat domestic data, which lifted the odds for an additional interest rate hike by the Reserve Bank of Australia in February. In fact, the Australian Bureau of Statistics reported that the headline Consumer Price Index (CPI) re-accelerated to the 7.3% YoY rate - a 32-year-high - in November from the 6.9% in the previous month. Furthermore, Australian Retail Sales surpassed even the most optimistic estimates and jumped 1.4% in November to a record A$35.9 billion. Furthermore, October's reading was also revised up sharply, to show a 0.4% growth as compared to the 0.2% drop originally reported.

Apart from this, the emergence of fresh selling around the US Dollar turns out to be another factor providing a lift to the AUD/USD pair. The overnight modest USD recovery from a seven-month low fizzled out rather quickly amid firming expectations that the Federal Reserve will soften its hawkish stance. The bets were lifted by last week's data, which showed that the US wage growth in December and pointed to signs of easing inflationary pressures. Furthermore, business activity in the US services sector contracted and hit the worst level since 2009 in December. This, in turn, reaffirmed expectations for a less aggressive policy tightening by the Fed and keeps the US Treasury bond yields depressed near a multi-week low. This, along with a positive risk tone, further undermines the safe-haven greenback.

With the latest leg up, the AUD/USD pair moves well within the striking distance of its highest level since late August touched earlier this week. The fundamental backdrop favours bullish traders and supports prospects for additional gains. Investors, however, might prefer to wait for the release of the US consumer inflation figures on Thursday. The crucial US CPI report should provide clarity on whether the Fed will have to increase its target rate beyond 5% to curb stubbornly high inflation. This, in turn, will play a key role in influencing the near-term USD price dynamics. In the meantime, the US bond yields, along with the broader risk sentiment, could drive the USD demand and provide some impetus to the major in the absence of any relevant market-moving US economic data on Wednesday.

Technical Outlook

From a technical perspective, the emergence of fresh buying on Wednesday validates the post-NFP breakout through the very important 200-day SMA. Adding to this, positive oscillators on the daily chart support prospects for a further near-term appreciating move. That said, any subsequent move up is likely to confront some resistance near the multi-month top, around the 0.6945 region. Some follow-through buying should allow the AUD/USD pair to aim back to reclaim the 0.7000 psychological mark. The positive momentum could get extended further towards an intermediate resistance near the 0.7045-0.7050 zone en route to the 0.7100 round figure.

On the flip side, weakness back below the 0.6900 mark now seems to find some support near the overnight swing low, around the 0.6880-0.6875 region. Any subsequent slide is more likely to attract fresh buyers and remain limited near the 200 DMA, currently around the 0.6840-0.6835 zone. The latter should act as a strong base for the AUD/USD pair, which if broken decisively will set the stage for deeper losses. Spot prices could then accelerate the fall towards the 0.6800 mark en route to the next relevant support near the 0.6725-0.6720 area and the 0.6700 round figure.