The pair is keeping a modest bounce off support at the 0.7000 level so far this week. That owes much to improved risk sentiment in the past two days, though the mood is more mixed today.
As much as the aussie bounce is encouraging, I'm still not entirely convinced. Sure, a risk rally is a positive factor but the Fed-RBA divergence arguably plays a bigger role in my view.
And if omicron fears are allayed, I don't see much else standing in the way of the Fed from tightening faster.
That said, one thing that AUD/USD buyers can work with is that Fed rate hike expectations have almost been completely priced in at this point. So, any major tailwind for the dollar may be more limited.
However, I wouldn't rule out further gains especially if the Fed sends clearer signals to speed up tapering and posture towards hiking rates before the middle of next year.
For now though, the aussie may look to retrace a little after five weeks of declines. The drop saw a move from above 0.7500 to 0.7000, so perhaps there is some scope for a light correction.
The 23.6 retracement level @ 0.7125 will be the first key point of contention. That is the important level to watch going into the daily close today. Keep above that and buyers could open up some room to roam towards 0.7200 next.
