- AUD/USD recovers from an initial drop and is back close to two-week highs set on Wednesday.
- Positive risk sentiment offers support to the higher perceived risk AUD amid subdued demand around the USD.
- The upside looks limited as investors prefer to wait on the sidelines ahead of the US CPI release.
The pair AUD/USD has managed to reverse modest early losses and has risen to a new daily high, around the region of 0.7190at the start of the European session on Thursday.
The pair attracted some buying near the 0.7160 area on Thursday and getting back close to the 2 1/2 week high played the day before. A positive tone around the stock markets turned out to be a key factor benefiting the perceived riskier Australian dollar amid subdued US dollar demand.
Having said that, high yields on US Treasury bonds, bolstered by dovish expectations from the Fed, continued to act as a tailwind for the USD. This, in turn, should cap any significant rally for AUD/USD ahead of the release of the US CPI consumer inflation figures, which will be released at the start of today’s American session.
Investors seem convinced that the Fed will tighten its monetary policy at a faster pace to contain stubbornly high inflation and have been pricing in an interest rate hike of 50 basis points in March. Therefore, the US CPI report for January will focus the attention of investors looking for new clues about the pace of tightening of the Fed’s monetary policies.
This will play a key role in the short-term USD price dynamics and provide further directional momentum to the AUD/USD pair. This makes it prudent to wait for a continuation of strong buying before positioning for an extension of the pair’s recovery from the two-year low set in January.
Aside from this, Thursday’s US economic calendar also features the release of the usual initial jobless claims data. This, along with US bond yields, will drive demand for the USD. Investors will take more cues from the broader market risk sentiment to take advantage of some short-term opportunities around the AUD/USD pair.
AUD/USD technical levels
Source: Fx Street
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