AUD/USD recovers early lost ground to weekly lows, focus remains on FOMC decision

   “¢   Remerging US-China trade tensions prompts some aggressive selling on Wednesday.
   “¢   Repositioning trade ahead the latest FOMC update helped limit further downside.

The AUD/USD pair managed to recover a major part of the Asian session slump to weekly lows and is currently placed at the top end of its daily trading range, around the 0.7085-90 region.

The pair extended this week’s retracement slide from over two-week tops, levels beyond the 0.7100 handle, and added to the overnight losses in wake of some renewed tension in the US-China trade negotiations.  

Bloomberg reported that some US officials expressed concern that China is pushing back against the US demands in trade talks and prompted some aggressive selling around the China-proxy Australian Dollar.

The pair tumbled to an intraday low level of 0.7057 and was further pressurized by a slight deterioration in risk sentiment, which tends to drive flows away from perceived riskier currencies – like the Aussie.  

Meanwhile, comments by Assistant Governor (Financial System) Michele Bullock did little to lend any support, albeit news that China may cut the reserve requirement ratio in the second quarter helped ease the bearish pressure.

Adding to this, investors’ reluctance to carry heavy positions ahead of today’s key event risk – the latest FOMC monetary policy update, further collaborated to the pair’s goodish intraday bounce of around 30-35 pips.

It would now be interesting to see if the pair is able to capitalize on the rebound or the current fall marks the resumption of the prior bearish trend as the focus now shifts to the Fed’s updated economic projections.  

Technical levels to watch

Any subsequent recovery is likely to confront some fresh supply near the 0.7100 handle, above which the pair is likely to surpass the 0.7120 intermediate resistance and head towards testing the 0.7160-65 resistance zone. On the flip side, the 0.7060-55 region might continue to protect the immediate downside, which if broken might turn the pair vulnerable to aim back towards challenging the key 0.7000 psychological mark.