AUDUSD near highest level since September, lacks continuation

• AUDUSD extends the previous day’s rally and rises to its highest level since September 22nd.
• Dollar selling behind the softer US CPI has not eased and offers support to the pair.
• The lack of continuation buying warrants some caution for the aggressive bulls.

The pair AUDUSD attracts some buying near the 0.6580-0.6575 region on Friday and rises to its highest level since September 22 during the European session. The pair is currently around the 0.6670 area and continues to be supported by the prevailing selling bias around the US dollar.

In fact, the dollar index, which measures the evolution of the greenback against a basket of currencies, hits a low of two and a half months amid the expectations that the Fed will slow down the pace of its tightening policy. Softer US consumer inflation figures released on Thursday reaffirmed bets in favor of lower rate hikes by the US central bank. Markets are currently pricing in more than an 80% chance of a 50 basis point hike at the December FOMC meeting.

Also, expectations about maximum interest rates in the US also fell below 5%, which is evident in a further decline in US Treasury bond yields. Aside from this, a sharp rally in equity markets is seen as undermining the safe-haven dollar, and providing additional support for the risk-sensitive Aussie. Having said that, concern about headwinds stemming from China’s zero COVID policy could dampen the latest optimism.

This, coupled with the lack of strong buying follow-through, warrants some caution before opening further bullish positions around AUDUSD and positioning for further gains, at least for now. Traders are now focused on the US economic docket, highlighting the release of the Preliminary US Consumer Sentiment Index from Michigan. This coupled with US bond yields and broader risk sentiment will weigh on the dollar and provide some lift to the AUDUSD pair.

AUDUSD technical levels