The AUD/USD pair regained positive traction on Thursday and moved further away from a nearly four-month low, around the 0.6570-0.6565 area touched the previous day. The pair maintains its bid tone through the first half of the European session and is currently placed near the daily high, comfortably above the 0.6600 round-figure mark.
The US Dollar (USD) eases from over a three-month high and is a key factor pushing the AUD/USD pair higher. The USD downtick, meanwhile, lacks any obvious fundamental catalyst and is more likely to remain limited amid expectations for more aggressive policy tightening by the Fed.
The markets are now pricing in a jumbo 50 bps lift-off at the next FOMC policy meeting on March 21-22, and hawkish comments by Fed Chair Jerome Powell reaffirmed the bets. On the second day of his testimony to the US Congress, Powell reiterated on Wednesday that interest rates would have to go higher and possibly faster to tame stubbornly high inflation.
This remains supportive of high US Treasury bond yields and supports prospects for the emergence of some USD dip-buying. The cautious mood might further limit losses for the safe-haven Greenback and cap gains for the risk-sensitive Australian Dollar.
The market sentiment remains fragile amid worries about economic headwinds from rapidly rising borrowing costs. Additionally, fading optimism over a solid economic recovery in China tempers investors’ appetite for riskier assets. This, along with the Reserve Bank of Australia’s dovish shift earlier this week, signaling that it might be nearing the end of its rate-hiking cycle, warrants caution for bulls and positioning for any further appreciating move for the AUD/USD pair.
Market participants now look to the US economic docket, featuring the release of Challenger Job Cuts and the usual Weekly Initial Jobless Claims data later during the early North American session. This, along with the US bond yields and the broader risk sentiment, should influence the USD price dynamics and provide some impetus to the AUD/USD pair. The focus, however, will remain glued to the closely-watched US monthly employment report, popularly known as the NFP on Friday.