AUD/USD stays on course to second weekly rise above 0.7200 on Fed concerns

• AUD/USD pauses the latest pullback from 100-DMA, weekly top.
• US-China top diplomats brace for the first meeting of 2022, US Treasury Secretary Yellen expects inflation to ease soon.
• US data weighed on yields, USD contrast to Aussie jobs report, inflation figures that favored AUD.
• Cautious mood to restrict pair’s performance amid light calendar ahead of next week’s FOMC.

AUD/USD hovers around 0.7220 following a U-turn from the weekly top around the 100-DMA. That said, the Aussie pair struggles for a clear direction but stays on the way to post the second consecutive weekly upside during early Friday morning in Asia.

The risk barometer pair cheered strong Aussie employment figures and Inflation expectations, for December and January respectively, during the initial Thursday. The People’s Bank of China (PBOC) surprised markets with a first cut in the 5-year Loan Prime Rate (LPR), by 5 basis points (bps) to 4.60%, in 21 months and helped AUD/USD as well.

The up-moves gained additional support after the US Philadelphia Fed Manufacturing Survey eased and jobless claims jumped to the three-week high, allowing Fed to have some leeway in its fight with the inflation, as recently signaled by US Treasury Secretary Janet Yellen.

Also on the positive side was the latest news from the South China Morning Post (SCMP) suggesting the US-China diplomatic talks after an abrupt rejection of the same on January 10.

Australia’s Unemployment Rate dropped to the 14-year low of 4.2% while the Employment Change also rose past expectations to keep the Aussie policymakers optimistic, which in turn propelled AUD/USD. On the other hand, the US Jobless Claims jumped to the highest since late October and the Philadelphia Fed Manufacturing Survey details also improved for January.

Elsewhere, US Treasury Secretary Yellen recently said in the CNBC interview that Inflation rose by more than most economists, including me, expected and of course, it's our responsibility with the Fed to address that. And we will. Additionally, SCMP signaled that China’s Yang Jiechi and US national security adviser Jake Sullivan are up for a crunch meeting but no date was indicated.

Amid these plays, the US 10-year Treasury yields posted a second consecutive daily loss after refreshing the two-year high on Wednesday. The same weighed on the US Dollar Index (DXY) and propelled gold prices, allowing Antipodeans to cheer the risk-on mood.

Although the recent signals hint at the US Federal Reserve’s (Fed) cautious approach in tacking the jump in inflation, the Fed policymakers are up for a fight and hence market players may remain divided ahead of the next week’s key meeting. The same joins a light calendar to restrict moves of the risk barometer pair AUD/USD for a short-term.

Read: Forex Today: Dollar hit by poor employment figures

Technical analysis

Sustained U-turn from the seven-week-old support line, around 0.7180 by the press time, joins firmer RSI to direct AUD/USD towards the 100-DMA level surrounding 0.7280, also helping it cross.

However, the quote’s further advances will be challenged by the monthly high of 0.7315 and the previous support line from August near 0.7350.