• AUD/USD reverses modest intraday losses, though lacks follow-through buying.
• The risk-on mood lends support to the Aussie; a modest USD uptick caps gains.
• Traders now look to the key FOMC policy decision for a fresh directional impetus.

The AUD/USD pair attracts some dip-buying on Wednesday and stalls the previous day's modest pullback from the vicinity of the 0.6900 mark, or its highest level since September 13. The pair climbs to the top end of its daily trading range during the early European session and is currently placed around the mid-0.6800s.

A generally positive tone around the equity markets turns out to be a key factor benefitting the risk-sensitive Australian Dollar. That said, a modest US Dollar strength could act as a headwind for the AUD/USD pair and keep a lid on any meaningful upside. The USD uptick, meanwhile, could be solely attributed to some repositioning trade ahead of the key central bank event risk and runs the risk of fizzling out quickly amid expectations for a less hawkish Fed.

The softer-than-expected US consumer inflation figures released on Tuesday reaffirmed expectations that the US central bank will slow the pace of its policy tightening. In fact, the Fed is widely expected to deliver a relatively smaller 50 bps rate hike at the end of a two-day meeting later this Wednesday. Hence, investors will closely scrutinize the accompanying monetary policy statement and the so-called "dot plot" for fresh clues about the Fed's rate-hike path.

In the meantime, nervousness about policymakers' view on a significant cooling in US inflation could lend support to the buck and cap gains for the AUD/USD pair. Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders and supports prospects for a further appreciating move. Even from a technical perspective, the overnight breakout through the 0.6800 mark and the emergence of some dip-buying on Wednesday add credence to the positive outlook.

Technical levels to watch