- AUD/USD gained traction for the second consecutive day and climbed to over two-week tops.
- Dovish Fed expectations, sliding US bond yields weighed on the USD and remained supportive.
- The set-up supported prospects for a move back towards reclaiming the 0.7800 round figure.
The AUD/USD pair continued scaling higher through the first half of the European session and shot to over two-week tops, around the 0.7775 region in the last hour.
The pair built on the previous day's post-US CPI bounce from the 0.7720-15 region, or weekly lows and gained follow-through traction for the second straight session on Friday. The US dollar remained on the defensive amid expectations that the Fed will retain its ultra-lose monetary policy for a longer period. This, in turn, was seen as a key factor that provided a modest lift to the AUD/USD pair.
Data released on Thursday showed that the headline US CPI accelerated sharply to a 5.0% YoY rate in May, marking the biggest annual gain since August 2008. Investors, however, seem convinced with the Fed's dovish view that any spike in inflation is likely to be transitory as the economy recovers from the pandemic-induced recession and that pricing pressures will abate later in the year.
This was reinforced by the overnight sharp decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond dived to its lowest level since early March and extended the slide on the last trading day of the week. This, along with the underlying bullish trend in the global equity markets, continued acting as a headwind for the safe-haven greenback.
The latest leg up pushed the AUD/USD pair beyond the 0.7755-65 horizontal resistance and might have already set the stage for additional gains. That said, the lack of any strong follow-through buying warrants some caution for bullish traders. Nevertheless, the stage seems set for a move towards reclaiming the 0.7800 mark en-route the next hurdle near the 0.7815-20 region.
Market participants now look forward to the release of the Preliminary Michigan US Consumer Sentiment index for some impetus later during the early North American session. Apart from this, the US bond yields will influence the USD. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the perceived riskier aussie.
Technical levels to watch
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