- AUD/SUD attracted some dip-buying near the 0.7100 mark on Friday amid modest USD pullback.
- Retreating US bond yields turned out to be a key factor that prompted some intraday USD selling.
- The cautious market mood, hawkish Fed expectations should limit the USD losses and cap the pair.
The AUD/USD pair recovered its intraday losses and climbed to a fresh daily high, around the 0.7170 region during the early North American session.
The pair attracted fresh buying near the 0.7100 mark on Friday and for now, seems to have stalled the overnight sharp retracement slide from a three-week high, around the 0.7250 region. As investors digested Thursday's release of red-hot US consumer inflation figures, the US dollar witnessed some intraday selling amid modest pullback in the US Treasury bond yields. This, in turn, was seen as a key factor behind the AUD/USD pair's goodish intraday bounce of over 60 pips.
The upside, however, remains capped amid the prevalent cautious market mood, which acted as a headwind for the perceived riskier aussie. Apart from this, the prospects for a faster policy tightening by the Fed should help limit the downside for the US bond yields and the buck. This warrants caution before placing fresh bullish bets around the AUD/USD pair and positioning for the resumption of the recent strong recovery move from the lowest level since June 2020.
The red-hot US CPI report on Thursday reinforced market expectations that the Fed would adopt a more aggressive policy stance to combat high inflation. Adding to this, St. Louis Fed President James Bullard called for a 100 bps rate hike over the next three FOMC policy meetings. This boosted bets for a 50 bps rate hike in March, which, in turn, favours the USD bulls and supports prospects for the emergence of fresh selling around the AUD/USD pair at higher levels.
Nevertheless, the pair remains on track to post the second successive weekly gains. Traders now look forward to the release of the Prelim University of Michigan US Consumer Sentiment Index. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Apart from this, traders will take cues from the broader market risk sentiment to grab some short-term opportunities on the last day of the week.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.