AUD/USD gains momentum on Tuesday as new USD selling materializes. The Dollar is affected by bets on less aggressive Fed rate rises and a rebound in risk sentiment. The COVID-19 problems in China should stop the positive developments and hinder Australian efforts.

On Tuesday, there is some dip buying in the AUD/USD pair at the 0.6640 level, which stays in a purchasing mood into the early European session. Spot prices are back above the 0.6700 level thanks to the upward intraday movement, aided by the resurgence of new US Dollar selling.

The AUD/USD pair is given some support due to several variables hindering Greenback’s ability to profit from the goodish overnight recovery from the crucial 200-day Simple Moving Average (SMA). Market expectations for a modest 50 basis point rate increase in December were reinforced by a dovish evaluation of the November FOMC meeting minutes published last week. This weakens the safe-haven USD and helps the risk-averse Aussie, combined with a minor improvement in the global risk mood.

However, the deteriorating COVID-19 scenario in China should temper any bullish market movement and act as a drag on the Australian Dollar, which serves as a proxy for China. In reality, China recorded a record-breaking number of COVID-19 infections on Monday, and the enactment of additional restrictions sparked a wave of unrest in several places. This intensifies concerns about a further downturn in economic activity and might affect market sentiment in the future.

Furthermore, the overnight hawkish remarks from significant FOMC members should restrict the Dollar’s fall and further limit the AUD/USD pair’s gain. It is important to remember that James Bullard, the president of the St. Louis Federal Reserve, John Williams, and Lael Brainard, the vice chair of the Fed, all reaffirmed that there would be more rate increases. Thus, bold bullish traders should be cautious and take positions for future profits.

However, the AUD/USD pair seems to have ended a two-day losing trend and is still at the whim of USD price movements. The publication of the US Consumer Confidence Index by the Conference Board is currently anticipated by market players as a potential catalyst later in the early North American session. However, attention will continue to be on Wednesday’s speech by Fed Chair Jerome Powell and this week’s important US economic data, such as the NFP report on Friday.