AUD/USD rebounds to 0.6700 as yields weigh on US Dollar ahead of Fed

AUD/USD renews its intraday high near 0.6700, paring the first daily loss in four marked the previous day, as traders brace for the all-important Federal Open Market Committee (FOMC) monetary policy meeting during early Wednesday.

Helping the Aussie buyers recently is the market’s cautious optimism surrounding the banking sector, as well as downbeat US Treasury bond yields. On the same line could be hopes for a strong economic transition in China.

However, downbeat Aussie data joins hawkish bets on the US Federal Reserve (Fed), versus receding hopes of the Reserve Bank of Australia’s (RBA) strong rate hike in near future, prod the AUD/USD pair buyers.

While tracing the market’s optimism, headlines suggesting the US policymakers’ discussion on ways to surpass Congress to defend the banks, as well as chatters that the First Republic Bank eyes the government’s help gain major attention. On the same line are Tuesday’s comments from US Treasury Secretary Janet Yellen who said, "Treasury, Fed, FDIC actions reduced risk of further bank failures that would have imposed losses on deposit insurance fund."  Previously, Bloomberg shared the news stating that “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis,” which in turn favored the market sentiment and the AUD/USD price.

It’s worth noting that China’s Securities Daily mentioned that the liquidity conditions in the nation remain ample, which in turn favors the AUD/USD buyers due to Aussie-China ties.

Alternatively, Australia’s Westpac Leading Economic Index for February dropped for the seventh consecutive month to -0.06% at the latest and challenges the AUD/USD buyers. On the same line could be the market forecasts suggesting more than 85% chances of the Fed’s 0.25% rate hike in today’s meeting, versus the latest chatters that the RBA lacks ammunition to propel rates further.

While portraying the mood, S&P 500 Futures remain lackluster around 4,040 despite upbeat Wall Street closing while benchmark US Treasury bond yields struggle to extend a two-day rebound from the lowest levels since September 2022. That said, the US 10-year and two-year Treasury bond yields mark a one basis point of downside near 3.60% and 4.18% respectively by the press time.

Looking forward, AUD/USD is likely to grind higher amid downbeat US Treasury bond yields and optimism surrounding economic recovery in Australia’s biggest customer, namely China. However, major attention will be given to developments in the Fed’s dot plot and comments to push back banking turmoil in Fed Chairman Jerome Powell’s speech as banking turmoil challenges the US central bank’s hawkish bias, despite the 0.25% rate hike expected.

Also read: Fed Preview: A dovish last hike?

Technical analysis

Upbeat oscillators keep AUD/USD buyers inside one-week-old ascending triangle, between 0.6665 and 0.6735 by the press time.