AUD/USD CLIMBS BACK ABOVE MID-0.7300S AMID WEAKER USD, RISK-ON MOOD

• AUD/USD regained positive traction on Thursday amid the emergence of fresh USD selling.
• The risk-on mood undermined the safe-haven USD and benefitted the perceived riskier aussie.
• The Fed’s more hawkish tilt could act as a tailwind for the USD and cap the upside for the pair.

The intraday USD selling bias pushed the AUD/USD pair to fresh daily tops, around the 0.7260 region during the early European session.

Following the previous day’s post-FOMC retracement slide from the 0.7300 neighbourhood, the AUD/USD pair attract fresh buying near the 0.7220 support area on Thursday. This marked the second successive day of a positive move and was sponsored by the emergence of some selling around the US dollar.

In fact, the USD Index pulled back from one-month tops touched in reaction to a more hawkish tilt on Wednesday amid the prevalent risk-on environment. The global risk sentiment got a lift after China’s struggling developer Evergrande Group agreed to settle interest payments on a domestic bond.

This, in turn, was seen as a key factor that benefitted the perceived riskier aussie, though any meaningful move up still seems elusive. The US central bank indicated that moderation in the pace of asset purchases may soon be warranted if economic progress continues broadly as expected.

Moreover, Fed Chair Jerome Powell added that the pandemic-era asset purchases could stop completely by the middle of 2022. Adding to this, the so-called dot plot that revealed a growing inclination to raise interest rates in 2022, which should continue to act as a tailwind for the USD.

Even from a technical perspective, the recent leg down witnessed over the past three weeks or so has been along a downward sloping channel. This points to a well-established short-term downtrend and supports prospects for additional losses, warranting some caution for aggressive bullish traders.

Market participants now look forward to the US economic docket, featuring the releases of the Weekly Initial Jobless Claims and flash PMI prints for September. The data might influence the USD, which, along with the broader market risk sentiment, should provide some impetus to the AUD/USD pair.