The AUD/USD pair regains positive traction on the first day of a new week and recovers a significant part of Friday’s losses to a one-and-half-week low. Spot prices stick to substantial intraday gains just below the 0.6700 mark through the first half of the European session and, for now, seem to have stalled last week’s retracement slide from the highest level since February 24.
The US Dollar (USD) struggles to capitalize on its substantial gains recorded over the past two days and eases from its highest level since early April touched this Monday, which, in turn, prompts some short-covering around the AUD/USD pair. A generally positive tone around the equity markets undermines the safe-haven Greenback and benefits the risk-sensitive Aussie. That said, any meaningful downside for the USD seems elusive amid reviving bets that the Federal Reserve (Fed) might stick to its hawkish stance in the wake of a rise in the US long-term inflation expectations.
The preliminary May reading from the University of Michigan released on Friday showed that consumers see prices climbing over the next five years at an annual rate of 3.2% – the highest since 2011. This could force the Federal Reserve (Fed) to keep interest rates higher for longer, which continues to act as a tailwind for the US Treasury bond yields and supports prospects for the emergence of some USD dip-buying. This and worries about an imminent recession could keep a lid on any market optimism and contribute to capping the upside for the AUD/USD pair.
The RBA’s hawkish outlook, indicating that further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, warrants caution for bearish traders. The US economic docket, featuring the release of the Empire State Manufacturing Index and a scheduled speech by Minneapolis Fed President Neel Kashkari, might influence the USD price dynamics. The broader market risk sentiment might produce short-term trading opportunities around the AUD/USD pair.