AUD/USD clings to gains near session tops, around mid-0.7200s
- AUD/USD regained positive traction on Friday and recovered a part of the overnight losses.
- The risk-on mood undermined the safe-haven USD and extended some support to the pair.
- The upside seems limited ahead of Fed Chair Powell’s speech at the Jackson Hole Symposium.
The AUD/USD pair held on to its modest intraday gains through the early European session and was last seen trading near daily tops, just above mid-0.7200s.
As investors looked past dismal Australian macro data, a modest US dollar weakness assisted the AUD/USD pair to gain some positive traction on Friday and recover a part of the overnight losses. The underlying bullish sentiment in the financial markets weighed on the safe-haven greenback and acted as a tailwind for the perceived riskier aussie. Apart from this, a softer tone around the US Treasury bond yields further undermined the greenback.
Meanwhile, investors seem convinced that the Fed might still start reducing the pace of its massive asset purchases later this year should help limit any deeper losses for the USD. The speculations were further fueled by St. Louis Fed President James Bullard and Dallas Fed President Robert Kaplan's hawkish comments on Thursday. This should help limit any meaningful slide for the USD and keep a lid on any strong gains for the AUD/USD pair.
Speaking to CNBC, Bullard said that he was sceptical that inflation would moderate and would want asset tapering to be completed by the first quarter of 2022. Adding to this, Kaplan noted that the strength of the US economy still puts the Fed on track to begin reducing its monthly bond purchases in October or soon after.
Investors might also refrain from placing any aggressive bets ahead of Fed Chair Jerome Powell's highly-anticipated speech at the Jackson Hole Symposium. Investors will look for clues about the likely timing of the Fed's tapering plan, which will influence the USD and provide a fresh directional impetus to the AUD/USD pair. Hence, it will be prudent to wait for some strong follow-through buying before positioning for any further gains.
Heading into the key event risk, traders would take cues from the release of the Fed's preferred inflation gauge – the Core PCE Price Index. This, along with the US bond yields and the broader market risk sentiment, might produce some short-term trading opportunities around the AUD/USD pair.
Technical levels to watch