- AUD / USD makes a good intraday recovery from six-week lows hit early Thursday.
- The pullback in US bond yields leads to some continued profit taking around the USD.
- The optimistic expectations of the Fed should act as a tailwind for the USD and limit the rise of the pair.
The pair AUD/USD has built on its recovery from six-week lows and has risen near the 0.7300 region during Thursday’s European session, although it has lacked continuation. At the time of writing, the pair remains positive on the day around the 0.7290 level.
The pair found some support near the lower end of a nearly three-month-old rising channel and achieved a modest rebound from 0.7250, or the lowest level since October 6 touched early this Thursday. The rally allowed the AUD / USD pair to halt this week’s rejection slide from the 100-day SMA and is due to some profit-taking around the US dollar.
Given the recent strong move to a 16-month high in the US Dollar DXY index, the decline in US Treasury yields turned out to be a key factor leading to some profit-taking around the USD for the second day in a row. Apart from this, the stable performance in the stock markets acted as a tailwind for the perceived riskier Aussie and contributed to the AUD / USD bounce of around 45-50 pips.
That said, any significant recovery still seems elusive. amid growing acceptance that the Fed would be forced to tighten its monetary policy sooner rather than later to contain stubbornly high inflation. Markets have weighed in on the possibility of an eventual Fed rate hike for July 2022 and Fed fund futures indicate a high probability of another rate hike for November.
Secondly, the RBA has maintained its pessimistic stance in an attempt to roll back expectations of a rate hike next year. The divergence in monetary policy between the RBA and the Fed should prevent bull traders from opening aggressive positions. This could help limit any strong positive movement for the AUD / USD pair, at least for now.
Therefore, any subsequent force could still be seen as a selling opportunity and the recovery attempt risks ending rather quickly. Market participants now await the US economic calendar, which includes the Philadelphia Fed Manufacturing Index releases and initial weekly jobless claims at the start of the US session.
This, along with US bond yields and a timed speech by New York Federal Reserve Chairman John Williams, will influence USD price dynamics and provide some boost to the AUD / USD pair. Investors will take more cues from the broader market risk sentiment to seize some short-term opportunities around the pair.
AUD / USD technical levels to be observed
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