AUD/USD bearishly poised below 0.6700 mark, focus remains on US PCE Price Index

• AUD/USD witnessed an intraday turnaround from over a one-week high touched on Friday.
• Rising US bond yields revive the USD demand and exert downward pressure on the major.
• The downside remains cushioned as traders keenly await the Fed’s preferred inflation data.

The AUD/USD pair retreats sharply from over a one-week high, around the 0.6735-0.6740 region touched earlier this Friday and continues losing ground through the first half of the European session. Spot prices reverse the previous day's positive move and drop to the 0.6670 area, or a fresh daily low in the last hour.

A goodish pickup in the US Treasury bond yields helps revive the US Dollar (USD) demand on the last day of the week, which, in turn, is seen as a key factor exerting downward pressure on the AUD/USD pair. That said, the prevalent risk-on mood - as depicted by a generally positive tone around the equity markets - could lend some support to the risk-sensitive Aussie. Against the backdrop of easing fears about a full-blown banking crisis, the better-than-expected Chinese PMI prints raise hopes for a strong recovery in the world's second-largest economy and boost investors' confidence.

Apart from this, the uncertainty over the Federal Reserve's (Fed) rate hike path could act as a headwind for the US bond yields, which might hold back the USD bulls from placing aggressive bets and contribute to limiting losses for the AUD/USD pair. It is worth recalling that the Fed had signalled recently that it might soon pause the rate-hiking cycle. That said, fading risk of bank contagion fueled speculations that the US central bank might shift back to its inflation-fighting rate hikes. Furthermore, three Fed officials on Thursday backed the case for more rate hikes to contain high inflation.

Hence, the market focus will remain glued to the release of the US Core PCE Price Index - the Fed's preferred inflation gauge - later during the early North American session. The data will play a key role in influencing market expectations about the next policy move. This, in turn, will drive the USD demand and help determine the next leg of a directional move for the AUD/USD pair. This, along with the emergence of some buying near the 0.6660 area over the past two trading sessions, warrants caution for aggressive bearish traders and before positioning for an extension of the intraday downfall.

From a technical perspective AUD/USD is consolidating within a dominant short-to-medium-term downtrend that began in January 2023. The overall environment, therefore, favors bears. The pullback since the March 10 low is probably corrective in nature and suggests more downside is in store once the dominant downtrend reaserts itself. A strong breakout from the consolidation lower, piercing the 0.6625 March 26 low, for example, would provide such a bearish confirmation, and probably lead to a retouch, at the very least of the 0.6565 yearly low – a break below that to a substantial bearish decline. 

Technical levels to watch