- AUD/USD reverses a modest intraday dip amid the emergence of some USD selling.
- Hawkish Fed expectations, elevated US bond yields should limit losses for the buck.
- A softer risk tone further contributes to capping the gains for risk-sensitive aussie.
- Traders eye the US PCE data for some impetus ahead of Fed Chair Powell’s speech.
The AUD/USD pair edges lower on Friday and erodes a part of the previous day’s strong gains to the 0.7000 neighbourhood, or over a one-week high. The pair remains on the defensive through the first half of the European session, though manages to find some support near mid-0.6900s and recovers a few pips from the daily low.
The US dollar surrenders its modest intraday gains and turns lower for the second successive day amid some repositioning trade ahead of Fed Chair Jerome Powell’s appearance at the Jackson Hole Symposium. This is seen as a key factor that helps limit the downside for the AUD/USD pair, though any meaningful upside still seems elusive ahead of the key event risk.
The overnight hawkish comments by Fed officials reaffirmed market expectations that the US central bank will stick to its policy tightening path. Policymakers, however, reserved their judgment on the size of the rate increase at the September FOMC meeting. Hence, Powell’s remarks will be scrutinized for clues about a 75 bps hike, which will drive the USD demand.
In the meantime, elevated US Treasury bond yields should continue to act as a tailwind for the buck. Apart from the prevalent cautious market mood – amid growing worries about a deeper global economic downturn, should continue to lend support to the safe-haven greenback. This, in turn, should keep a lid on any meaningful intraday positive move for the AUD/USD pair.
Heading into the key event risk, traders on Friday will also take cues from the release of the US Core PCE Price Index, due later during the early North American session. This, along with the US bond yields and the broader risk sentiment, could influence the USD and provide some impetus to the AUD/USD pair, though the immediate market reaction is likely to be short-lived.
Technical levels to watch