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AUD/USD's rally off the 2018 low was dealt a sharp blow late last week, but bulls still maintain the upper hand heading into the Fed.
Italy's political tensions eased a bit further today, which helped boost risk sensitive assets such as equities and emerging market currencies.
The Aussie dollar is broadly bid on the upbeat sentiment and AUD/USD is back above the 55-Day SMA after tests of the 21-Day SMA were rejected.
Australian April housing finance and May employment are data risks this week but their impact is likely to be limited as the Fed will garner the markets' attention.
AUD/USD traders will look past the expected Fed hike this Wednesday and instead focus on the dot plots and economic projections.
An upside shift in the dot plot and projections could see a more aggressive Fed rate hike path from the market, which would likely lead to sharp gains for the greenback.
AU-U.S. yield spreads would further favor the U.S. dollar and AUD/USD's 2018 rally would be jeopardized.
May's 0.7413 low would then be in play.
A break of that low targets 0.7330 and 0.7150/0.7200 supports.
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