- AUD/USD gained positive traction on Friday and climbed to three-day tops amid weaker USD.
- The risk-on mood undermined the safe-haven USD and benefitted the perceived riskier aussie.
- Hawkish Fed expectations, rallying US bond yields might help limit USD losses and cap the pair.
The AUD/USD pair maintained its bid through the first half of the European session, albeit has retreated few pips from daily tops and was last seen trading just below the 0.7400 mark.
Following the previous session's two-way/directionless price moves, the AUD/USD pair regained positive traction on the last day of the week and was supported by a broad-based US dollar weakness. The risk-on impulse – as depicted by a solid recovery in the equity markets – undermined the safe-haven greenback and benefitted the perceived riskier aussie.
Bulls, however, struggled to capitalize on the move or find acceptance above the 0.7400 mark, at least for the time being. Receding demand for traditional safe-haven assets triggered a strong rally in the US Treasury bond yields. This, along with expectations for an imminent Fed taper announcement, acted as a tailwind for the USD and capped gains for the AUD/USD pair.
Investors seem convinced that the Fed will begin rolling back its pandemic-era stimulus sooner rather than later. The speculations were fueled by Fed Governor Michelle Bowman's overnight comments, saying that the central bank was close to announcing the start of tapering. This was in line with hawkish remarks by various Fed officials this week.
Hence, it will be prudent to wait for a strong follow-through buying before confirming that the recent pullback from the highest level since mid-July has run its course and placing fresh bullish bets. Market participants now look forward to the release of the US Producer Price Index for some short-term impetus later during the early North American session.
Apart from this, the US bond yields might influence the USD price dynamics. Traders might further take cues from the broader market risk sentiment in order to grab some short-term opportunities around the AUD/USD pair.