AUD/USD: Mildly bid around mid-0.7200s as risk appetite improves

• AUD/USD keeps the week-start optimism around monthly high, refreshes intraday top at the latest.
• US Treasury yields pare early Asian gains amid mixed concerns, Omicron-linked headlines.
• The Aussie government scrapped requirements for new interstate arrivals, NSW reports 6,062 COVID-19 infections and one virus-led death.
• Second-tier US data, risk catalysts are the key but year-end holiday mood to restrict market moves.

AUD/USD grinds higher near intraday top close to 0.7250 heading into Tuesday’s European session. In doing so, the Aussie pair stays firmer around the monthly high, rising for the second consecutive day.

The quote’s latest run-up could be linked to the U-turn in the US Treasury yields, which in turn weighed on the US dollar. The bond coupons started the day on a positive note amid hopes of strong US recovery before recently easing.

That said, the US 2-year Treasury yields jumped to the highest since March 2020 before recently easing to 0.75% while the 10-year counterpart stays pressured near 1.474% after the 1.7 basis points (bps) of a decline marked on Monday. The pullback in US bond coupons pushed the US dollar to reverse the early Asian bounce off the one-month-old support line.

Hopes of faster US recovery, backed by firmer retail sales during the holiday season and receding fears of Omicron, initially favored the Treasury bond yields and the US Dollar Index (DXY). However, an absence of fresh catalysts and a positive market mood dragged the greenback afterward.

Among the positive catalysts are the concerns over further stimulus from China and the US, as well as Australia’s repealing of interstate travel restrictions, favored the risk appetite. Easing tensions over Iran’s denuclearization talks and relating to the Russia-Ukraine tussles add to the risk-on mood.

On the contrary, hopes of the Fed’s rate hike in 2022 and a jump in the covid numbers in Australia’s most populous state New South Wales (NSW) challenge the AUD/USD bulls.

Considering the aforementioned catalysts, coupled with the recently mixed mood at the Reserve Bank of Australia (RBA), the analysts at Commonwealth Bank of Australia (CBA) offer an optimistic outlook for the AUD/USD prices while expecting the quote to reach 0.7800-0.8000 by Q4 2022.

Technical analysis

Tops marked during early December, surrounding 0.7225, restrict the immediate downside of the AUD/USD prices. However, bulls need validation from the 50-DMA level of 0.7272 for further dominance.