AUD/USD sits near multi-week top, just below mid-0.7100s amid broad-based USD weakness

The AUD/USD pair maintained its bid tone through the first half of the European session and was last seen trading near a three-week high, just below mid-0.7100s.

A combination of supporting factors assisted the AUD/USD pair to gain strong positive traction on Friday and breakout through a multi-day-old trading range. The Australian dollar continued drawing support from the Reserve Bank of Australia's hawkish signal that a bigger interest rate hike is still possible in June amid the upside risks to inflation. Apart from this, the prevalent US dollar selling bias provided an additional boost to the major and contributed to the ongoing bullish move.

The FOMC meeting minutes released on Wednesday suggested that the Fed could pause the rate hike cycle after two 50 bps hikes each in June and July amid the worsening economic outlook. The speculations were fueled by Thursday's release of the Prelim US GDP report, which showed that the economy contracted by a 1.5% annualized pace in Q1. This, in turn, dragged the yield on the benchmark 10-year US government bond fell to a six-week low, which, along with the risk-on impulse, weighed heavily on the buck.

Meanwhile, the intraday move up pushed spot prices beyond the 0.7125 supply zone and might have already set the stage for additional gains. Hence, a subsequent strength, towards reclaiming the 0.7200 round-figure mark, now looks like a distinct possibility. The momentum could further get extended to the 100-day SMA, around the 0.7230-0.7235 region. Traders now look to the US Core PCE Price Index - the Fed's preferred inflation gauge - for a fresh impetus later during the early North American session.

Technical levels to watch