AUD/USD advances to over two-week high, 0.6800 mark in sight ahead of the Fed

• AUD/USD gains positive traction for the third straight day amid modest USD weakness.
• Bets for a 50 bps Fed rate cut and a positive risk tone undermine the safe-haven buck.
• China's economic woes warrant caution for bulls ahead of the crucial Fed policy decision. 

The AUD/USD pair scales higher for the third straight day - also marking the fifth day of a positive move in the previous six - and climbs to over a two-week high, around the 0.6775-0.6780 region during the early European session on Wednesday. The momentum is sponsored by the emergence of fresh US Dollar (USD) selling, which continues to be weighed down by dovish Federal Reserve (Fed) expectations. 

In fact, the markets are currently pricing in a greater chance of an oversized 50 basis points (bps) Fed rate cut move at the end of a two-day policy meeting later today. This keeps a lid on the overnight recovery in the US Treasury bond yields, led by the upbeat US Retail Sales figures. Apart from this, a generally positive tone around the equity markets caps the USD recovery from its lowest level since July 2023 and acts as a tailwind for the AUD/USD pair. 

The Australian Dollar (AUD), on the other hand, continues to draw support from the Reserve Bank of Australia's (RBA) hawkish stance. The RBA Governor Michele Bullock reiterated last Thursday that bringing inflation down to the target band of 2-3% remains the central bank's highest priority and it was premature to contemplate near-term rate cuts as inflation remained too high. This further contributes to the bid tone surrounding the AUD/USD pair. 

That said, persistent worries about a slowdown in China - the world's second-largest economy - might hold back traders from placing aggressive bullish bets around the China-proxy Aussie. Investors might also prefer to move to the sidelines and wait for the highly-anticipated FOMC monetary policy decision before positioning for an extension of the AUD/USD pair's recent goodish rebound from the 200-day Simple Moving Average (SMA) support.