AUD/USD bounces up and returns above 0.6600 as the US Dollar retreats

• The Aussie Dollar bounces at 0.6575, returns above 0.6600 as the USD pulls back on a choppy trading session
• Market sentiment has improved somewhat ahead of US PMIs and Fed Powell's speech.
• Fed - RBA monetary policy divergence is likely to support the AUD.
  

The Australian Dollar has returned to levels right above 0.6600 against the US Dollar on a choppy trading session on Tuesday. The Aussie drew support from a declining US Dollar, with market sentiment improving ahead of the release of US flash PMIs and Fed Powell's conference, due later today.

US business activity is expected to have slowed in both the manufacturing and services sectors, but remains at levels consistent with moderate growth. The risk, however, is of a negative surprise that would resurface concerns about the negative impact from tariffs and add pressure on the Fed to cut rates further.

Fed - RBA monetary policy divergence might support the Aussie

The PMI figures are likely to frame Fed Chair Jerome Powell's conference about the economic outlook at Providence's  Chamber of Commerce. Powell curbed hopes of a steep monetary easing after the monetary policy decision, citing looming inflationary pressures and sent the US Dollar higher against its main peers.

US Dollar's recovery seems to have lost steam this week. Fed speakers provided a wide range of monetary policy views on Monday. Their comments left the odds for a quarter-point rate cut in November unchanged at 90%, and about a 70% chance of another one in December, according to the CME Fed Watch tool.

In Australia, the RBA Governor, Michelle Bullock, defended that inflation is in a "very good position" on a hearing before a parliamentary committee, but warned about the uncertain trade environment. Her words support the idea that the bank will stand pat on rates at next week's meeting, which provided some support to the AUD.