- 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
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