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  • AUD/USD quickly reversed an early dip and shot to fresh 33-month tops on Wednesday.
  • Firming expectations for a Democrat victory in Georgia kept the USD bulls on the defensive.
  • A softer risk tone, disappointing Chinese PMI kept a lid on any further gains for the aussie.

The AUD/USD pair rallied around 45-50 pips from Asian session lows and refreshed 33-month tops, around the 0.7780 region in the last hour.

The pair attracted some dip-buying near the 0.7730-35 region and turned positive for the second consecutive session on Wednesday amid the underlying bearish sentiment surrounding the US dollar. Increasing bets for a Democrat victory in the crucial US Senate runoff elections in Georgia further raised hopes of more fiscal stimulus.

Expectations of larger government borrowing pushed the benchmark 10-year US Treasury yield to the highest level since March and held the USD bulls on the defensive. This was seen as a key factor that extended some support to the AUD/USD pair. However, a softer tone in the equity markets kept a lid on any strong gains for the perceived riskier aussie.

Apart from this, a slight disappointment from China’s Caixin Services PMI, which unexpectedly fell to 56.3 in December from 57.8 previous, further collaborated towards capping gains for the China-proxy Australian dollar. This makes it prudent to wait for some follow-through buying before positioning for any further appreciating move for the AUD/USD pair.

As investors brace for a possible Democrat win in Georgia, Wednesday’s US economic docket – highlighting the release of the ADP report on private-sector employment – will be looked upon for some impetus. The key focus, however, will be on the latest FOMC meeting minutes, which will play a key role in influencing the near-term USD price dynamics.

Technical levels to watch