The AUD/USD pair experienced a pullback from around the 0.6900 level on Friday, resulting in a partial reversal of the previous day’s robust rally that had pushed it to a nearly one-month high.
Spot prices declined to a fresh daily low in the early European session, hovering around the 0.6860 area. Although this interrupted a three-day winning streak, the short-term bias still appears to favor bullish traders.
The rise in US Treasury bond yields provided some support to the US Dollar (USD), halting its recent significant decline to its lowest level since April 2022. This development is viewed as a hindrance for the AUD/USD pair.
Additionally, a slightly negative sentiment surrounding US equity futures also contributed to limiting gains for the Australian Dollar, which is considered a risk-sensitive currency.
Nonetheless, the prevailing belief that the Federal Reserve (Fed) is nearing the end of its tightening cycle should prevent any substantial USD recovery and validate the positive outlook for the pair in the near term.
Recent US economic data indicates a further easing of inflationary pressures, which should allow the Fed to adopt a less hawkish stance. The headline US CPI showed a slowdown to a 3% annual rate, marking the smallest increase since March 2021, while the monthly rise in core prices was the lowest since August 2021.
Moreover, the US PPI for June recorded the smallest year-on-year rise since August 2020. These figures reinforce market expectations that the US central bank will maintain interest rates steady after the anticipated 25 bps increase at its July monetary policy meeting.
Furthermore, there is hope that China will introduce additional stimulus measures to bolster its fragile domestic economy. This could provide support to the Australian Dollar, which is often seen as a proxy for China’s economic performance.
Additionally, optimistic comments from China’s Foreign Minister Wang Yi, indicating stability, improvement, and development in China-Australia relations, enhance the likelihood of investors buying the dip in the AUD/USD pair.
However, bullish traders may wait for a sustained breakout above the psychological level of 0.6900 before entering new positions and anticipating further gains.
Market participants are now eagerly awaiting the release of the Preliminary Michigan US Consumer Sentiment Index. This, coupled with US bond yields and the overall risk sentiment, may influence the direction of the USD and provide some momentum to the AUD/USD pair on the final trading day of the week.
Nevertheless, spot prices are on track to register significant weekly gains, with attention now shifting to important macro data from China, scheduled for release during the Asian session on Monday.
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