- AUD/USD has seen an intraday pullback from multi-month highs hit on Thursday.
- Risk aversion momentum and high US bond yields rekindled demand for dollars and exerted some pressure.
- Lack of follow-through selling warrants some caution before positioning for any downside correction.
AUD/USD remained on the defensive during the early US session, although it has managed to recover pips from the daily lows. The pair was last seen trading just below the key psychological level of 0.7500. Down more than 0.25% on the day.
The pair struggled to build on its initial rise to the highest level
AUD/USD struggled to build on its initial rise to the highest level since early July. And additionally experienced an intraday pullback from the 0.7535 area. The corrective pullback was fueled by a positive recovery in the demand for the US dollar. Which gained some support from the boost in risk aversion and high US Treasury yields.
Investors were nervous about renewed concerns over possible contagion from Evergrande’s debt crisis in China. The heavily indebted developer announced Wednesday that a $2.6 billion stake in its real estate services unit had fallen through. In turn, this reduced investor appetite for riskier assets and benefited the safe-haven dollar.
Meanwhile, the 10-year US government bond yield remained near 1.67%, the highest since May, and further supported the dollar. Investors seem convinced that a faster-than-expected rise in inflation could force the Fed to adopt a more aggressive policy response in 2022.
Weekly jobless claims fell to 290,000
Weekly jobless claims fell to 290,000 in the week ending October 15, compared to expectations for an increase to 300,000 from 296,000. In the current month, this offset a weaker-than-expected Philadelphia Fed manufacturing index, which fell to 23.8 from 30.7 in September.
Despite mixed economic data, dollar bulls looked for signs that the recent rally in U.S. bond yields would continue. The 10-year U.S. government bond yield remained near the 1.67% level, its highest level since May. Amid expectations of early Fed policy tightening.
Unfortunately, this week’s macroeconomic data releases in the United States (industrial production and housing market data) pointed to weakening economic activity. A faster-than-expected rise in inflation, however, seems to have convinced investors that the Fed will have to act more aggressively to combat it. And additionally they have priced in the possibility of a rate hike in 2022.
It will now be interesting to see whether AUD/USD can attract further buying at lower levels. Or whether the pullback indicates that the recent strong move seen since the September lows has lost steam. However, there should be some caution before concluding that the pair has topped out given the lack of solid follow-through selling.