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  • Sustained USD selling bias assisted AUD/USD to gain strong positive traction on Tuesday.
  • Dovish Fed expectations, a positive risk tone weighed heavily on the safe-haven greenback.
  • The RBA’s upbeat economic assessment also benefitted the aussie and remained supportive.

The AUD/USD pair maintained its strong bid tone through the first half of the European session and was last seen trading near multi-day tops, around the 0.7800 mark.

Following the previous day’s good two-way price swings, the pair caught some fresh bids on Tuesday and built on last week’s rebound from sub-0.7700 levels. The uptick was supported by the prevalent bearish sentiment surrounding the US dollar.

Investors remain convinced that the Fed will tolerate what it sees as a temporary acceleration in inflation for some time and keep interest rates low for a longer period. This, in turn, was seen as a key factor that continued weighing on the greenback.

Apart from this, a generally positive tone in the financial markets further undermined the greenback’s relative safe-haven demand and benefitted the perceived riskier aussie. Even an uptick in the US bond yields also did little to provide any respite to the USD.

The Australian dollar got an additional lift after the RBA – in the minutes of its latest meeting held on May 4 – acknowledged that the economic recovery momentum was stronger than anticipated. The upbeat assessment helped offset the central bank’s cautious stance.

The RBA showed a willingness to undertake further bond purchases to assist with progress towards the goals of full employment and inflation. The Australian central bank reiterated that it will not hike rates until 2024 at the earliest amid muted inflation risks.

Nevertheless, the intraday bias remains tilted in favour of bullish traders and supports prospects for additional gains amid absent relevant market moving economic releases. The key focus, however, will be on the FOMC meeting minutes, scheduled for release on Wednesday.

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