The AUD/USD pair gains traction for the second straight day on Tuesday – also marking the fourth day of a positive move – and climbs to a one-and-half-week high during the early part of the European session. Spot prices currently trade above mid-0.6700s, up around 0.15% for the day, as investors look to the outcome of a two-day Federal Open Market Committee (FOMC) meeting on Wednesday for a fresh directional impetus. 

Heading into the key central bank event risk, the US Dollar (USD) consolidates its recent heavy losses to the lowest level since July 2023 amid bets for an oversized 50 basis points interest rate cut by the Federal Reserve (Fed). This, along with the Reserve Bank of Australia's (RBA) hawkish outlook and a generally positive tone around the equity markets, turns out to be a key factor benefiting the risk-sensitive Aussie and lending some support to the AUD/USD pair. 

With the latest leg up, spot prices have now rallied nearly 150 pips from the vicinity of the very important 200-day Simple Moving Average (SMA) support, around the 0.6620 region, or a nearly four-week low touched last Wednesday. Moreover, the fundamental backdrop seems tilted in favor of the USD bears and suggests that the path of least resistance for the AUD/USD pair is to the upside. That said, concerns about a slowdown in China could act as a headwind. 

In fact, a string of downbeat Chinese data released over the weekend pointed to more economic weakness and challenges in reaching the official target of around 5% GDP growth rate in 2024. This, in turn, could act as a headwind for the China-proxy Australian Dollar (USD). Traders might also prefer to wait for more cues about the Fed's rate-cut path, warranting some caution before placing fresh bullish bets around the AUD/USD pair. 

Next on tap is the release of the US monthly Retail Sales figures, which, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the currency pair. The market reaction to the US macro data, meanwhile, is more likely to be limited as the focus remains glued to the crucial Fed policy decision. 

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