AUD/USD dribbles at eight-month high near 0.7150 as cautious mood joins firmer Aussie data, dovish Fed

• AUD/USD clings to mild gains at multi-day top, sidelined of late.
• Australia Building Permits came in firmer during December.
• Market sentiment dwindles as traders lick Fed-induced wounds ahead of ECB, BoE.
• US Factory Orders, hints for Friday’s NFP could entertain Aussie pair traders.

AUD/USD remains sidelined at the highest levels since June 2022, mildly bid near 0.7140 during early Thursday, as bulls take a breather after the biggest daily jump in a month. In doing so, the risk-barometer pair portrays the market’s inaction while keeping the Federal Reserve (Fed) inspired gains.

Other than the Fed’s dovish rate hike, firmer prints of Aussie housing data also favor the AUD/USD buyers. That said, Australia’s Building Permits rose 18.5% MoM and improved to -3.8% YoY in December versus -9.0% and -15.1% respective priors.

Elsewhere, the Fed announced a 0.25% rate hike and matched the market forecast. However, the interesting part was lying in the Monetary Policy Statement which stated that the inflation “has eased somewhat but remains elevated”. Following the initial Fed announcements, the US Dollar paused the early Wednesday’s rebound.

However, major moves took place on Fed Chair Jerome Powell’s comments  as he said “We can declare that a deflationary process has begun.” The policymaker also accepts the need for rate cuts during late 2023 if inflation comes down much faster. It should be observed that Fed Chair suggested that a couple more rate hikes are needed to reach the policy pivot but markets seem to ignore the fact.

As the Federal Open Market Committee (FOMC) came out dovish, Wall Street rallied and the US 10-year Treasury yields slumped the most in two weeks while testing the lowest levels in a fortnight. Further, the S&P 500 Futures print mild gains around the highest levels since August 2022, tested the previous day.

Looking ahead, AUD/USD traders may witness a lackluster day ahead of the monetary policy meetings of the European Central Bank (ECB) and the Bank of England (BoE) as they both are likely to propel the market moves. In addition to that, US Factory Orders for December, were expected 2.3% versus -1.8% prior and the US Preliminary Nonfarm Productivity for the fourth quarter (Q4), expected 2.4% versus 0.8% prior. Above all, Friday’s US jobs report for January will be crucial to follow for clear directions.

Technical analysis

Although the overbought RSI tests AUD/USD bulls, the pair’s downside remains off the table unless witnessing a daily closing below the six-month-old horizontal support surrounding 0.7130-25.