AUD/USD remains sideways around 0.7100, just below the pre-US PCE multi-month high.

• The AUD/USD pair struggles to gain significant traction and remains range bound.
• A combination of factors reignites USD demand and acts as a headwind for the pair.
• Bets on further RBA rate hikes support ahead of US PCE price index.

On Friday, the pair AUD/USD it oscillated within a narrow trading band and consolidated its recent gains to the highest level since June 2022, reached the previous day. The pair is currently sitting around 0.7100, virtually unchanged on the day, as traders await further impetus from key US macroeconomic data.

The Fed’s preferred inflation gauge, the core PCE price index, will be released shortly. This could influence the US central bank’s rate hike path, which in turn would boost demand for US dollars and give AUD/USD further directional momentum. Meanwhile, a nice rally in US Treasury yields provides some support for the dollar. Apart from this, the cautious mood prevailing in the market further benefits the dollar’s relative safe-haven status and limits gains for the risk-sensitive Aussie.

However, the modest intraday dollar lacks bullish conviction on the prospect of a less aggressive Fed tightening. Indeed, markets are still pricing in a 25 basis point Fed rate hike in February, which, in turn, limits any significant rise in the dollar. Apart from this, the increased odds of a further rate hike by the Reserve Bank of Australia (RBA) in February, bolstered by the stronger national CPI report on Wednesday, props up the national currency and acts as a tailwind for the AUD/USD pair.

The US economic calendar for Friday also includes the release of pending home sales data and a revision of the Michigan Consumer Sentiment Index. This, along with US bond yields and broader market risk sentiment, could influence USD price dynamics and give the AUD/USD pair some momentum. However, attention will remain focused on the outcome of the FOMC’s two-day policy meeting, which will be announced next Wednesday. Heading into this key event, the major currencies are likely to continue their consolidation trend.

technical levels