AUD/USD remains on the defensive around mid-0.6900s, downside potential seems limited – by hareshmenghani AUDUSD Fed Inflation RBA Currencies
. The pair remains depressed heading into the European session and is currently placed near the daily low, around mid-0.6900s.
A combination of factors assists the US Dollar to stage a modest bounce from a seven-month low, which, in turn, acts as a headwind for the AUD/USD pair. A modest uptick in the US Treasury bond yields, along with a softer tone around the equity markets, offers some support to the greenback. The worst COVID-19 outbreak in China overshadows the optimism led by the country's pivot away from its zero-COVID policy.
That said, any meaningful USD recovery still seems elusive amid rising bets for smaller Fed rate hikes going forward. Investors now seem convinced that the US central bank will soften its hawkish stance and the expectations were reaffirmed by Thursday's release of the latest US consumer inflation figures. Furthermore, several FOMC members backed the case for a 25 bps lift-off in February, which should keep a lid on the US bond yields and hold back the USD bulls on the back foot.
Hence, it will be prudent to wait for strong follow-through selling before confirming that the major has formed a near-term top and positioning for a deeper corrective pullback. Market participants now look forward to the release of the Preliminary Michigan Consumer Sentiment Index from the US, due later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the AUD/USD pair.
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