- AUD / USD consolidates its recent gains to the highest level since the beginning of July.
- Rising US bond yields, the market’s cautious mode supports the dollar as a safe haven.
- Expectations of an aggressive RBA helped limit the decline.
The pair AUD/USD it extended its side consolidation price action and remained on the defensive, below 0.7550 for the middle of the European session.
The pair struggled to capitalize on the positive move the day before to the highest level since early July and turned down on the last trading day of the week. Investors became cautious amid mounting concerns about stagflation risk following the disappointing release of US Q3 GDP on Thursday. This was evidenced by a softer tone in equity markets, which boosted some safe-haven flows to the US dollar and acted as a headwind for the perceived riskier Aussie.
The dollar received additional support from a strong rally in US Treasury yields, bolstered by prospects for an early policy tightening by the Fed. Indeed, markets now seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. This, in turn, was seen as a key factor pushing the yield on the 10-year US government bond above the 1.60% level.
Therefore, the market’s focus will remain on Friday’s release of the Fed’s preferred inflation indicator – the core PCE price index. This will set the tone for next week’s FOMC meeting and provide a significant boost to the AUD / USD pair. Meanwhile, speculation about an interest rate hike by the Reserve Bank of Australia (RBA) could continue to provide some support to the Aussie dollar and help limit the pair’s slide.
Technical levels
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