AUD/USD retreats from nearly two-week high, back below 0.6700 amid risk-off mood

The AUD/USD pair trims a part of its intraday gains to a nearly two-week high and retreats below the 0.6700 round-figure mark heading into the North American session on Friday.

A fresh leg down in the equity markets helps the safe-haven US Dollar to bounce off the daily low and acts as a headwind for the risk-sensitive Australian Dollar. Despite multi-billion-dollar lifelines for troubled banks in the US and Europe, investors remain worried about widespread contagion and the possibility of a full-blown global banking crisis. This, along with looming recession fears, takes its toll on the global risk sentiment and drives some haven flows towards the Greenback.

That said, declining US Treasury bond yields continue to weigh on the USD and remain supportive of the intraday bid tone surrounding the AUD/USD pair. Against the backdrop of the global flight to safety, expectations that the Fed will adopt a less hawkish stance amid the worsening economic conditions drag the US bond yields lower. In fact, the markets are now pricing in a greater chance of a smaller 25 bps rate hike at the upcoming FOMC policy meeting on March 21-22.

This comes on the back of last week's collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - and warrants some caution for the USD bulls. Traders, however, might prefer to move to the sidelines ahead of next week's key central bank event risk. In the meantime, the Reserve Bank of Australia's (RBA) recent dovish shift, signalling that it might be nearing the end of its rate-hiking cycle, might continue to cap the upside for the AUD/USD pair, at least for the time being.

Next on tap is the release of the Michigan US Consumer Sentiment Index. This, along with the US bond yields and the broader risk sentiment, might influence the USD price dynamics and provide some impetus to the AUD/USD pair. Nevertheless, spot prices manage to hold in the positive territory for the second successive day and remain on track to end the week on a positive note, reversing a major part of last week's losses to its lowest level since November 2022.

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