AUD/USD extends recovery from multi-month low, further beyond mid-0.7100s

The AUD/USD pair staged a goodish intraday rebound from the 0.7075 region, or its lowest level since February 7 touched earlier this Thursday. The recovery momentum extended through the early European session and pushed spot prices to a fresh daily high, around the 0.7160 region in the last hour.

The Australian Bureau of Statistics reported on Wednesday that consumer prices in Australia surged at the fastest annual pace in two decades during the first quarter. The data fueled speculation the Reserve Bank of Australia could hike interest rates from record lows as soon as next week. This, along with the risk-on impulse, extended support to the perceived riskier aussie.

On the other hand, the US dollar eased a bit from a five-year high amid a softer tone surrounding the US Treasury bond yields. This, in turn, was seen as another factor that prompted some intraday short-covering around the AUD/USD pair. That said, the prospects for a more aggressive policy tightening by the Fed should act as a tailwind for the buck and cap gains for the major.

The markets now seem convinced that the Fed will hike interest rates by 50 bps when it meets on May 3-4, and again in June and July, and ultimately lift rates to around 3.0% by the end of the year. Apart from this, the deteriorating global economic outlook favours the USD bulls, warranting some caution before positioning for any further appreciating move for the AUD/USD pair.

Market participants now look forward to the US economic docket, highlighting the release of the Advance Q1 GDP report and the usual Weekly Initial Jobless Claims. Traders will further take cues from the US bond yields and the broader market risk sentiment, which will influence the USD price dynamics. This, in turn, should produce some short-term opportunities around the AUD/USD pair.

Technical levels to watch