AUD/USD jumps back closer to weekly high, eyes 0.7000 amid heavy USD selling

• AUD/USD catches fresh bids on Thursday and rallies back closer to the weekly high.
• The uncertainty over the Fed’s rate-hike path weighs on the USD and offers support.
• The risk-on mood further undermines the buck and benefits the risk-sensitive Aussie.

The AUD/USD pair regains positive traction on Thursday and maintains its strong bid tone through the mid-European session. The pair is currently trading around the 0.6975-0.6980 region, just a few pips below the weekly high touched on Wednesday.

A combination of factors triggers a sharp US Dollar corrective pullback from a one-month high, which, in turn, is seen acting as a tailwind for the AUD/USD pair. The uncertainty over the Fed's rate-hike path drags the US Treasury bond yields lower. This, along with the risk-on impulse, weighs on the safe-haven buck and benefits the risk-sensitive Aussie.

Investors turned optimistic amid signs of easing inflationary pressures and hopes that the People's Bank of China (PBoC) may cut interest rates further during the second quarter. The Australian Dollar is also underpinned by the Reserve Bank of Australia's hawkish outlook, signalling further rate increases will be needed to ensure that inflation returns to target.

That said, the prospects for further policy tightening by the Fed support prospects for the emergence of some USD dip-buying, which, in turn, could cap the upside for the AUD/USD pair. In fact, a slew of FOMC members on Wednesday echoed Fed Chair Jerome Powell's view that additional rate hikes were likely warranted to fully gain control of inflation.

Furthermore, growing worries about a deeper global economic downturn might keep a lid on any optimism in the markets. This, in turn, could lend some support to the greenback and contribute to keeping a lid on the AUD/USD AUD/USD pair, at least for the time being. Traders now look forward to the release of the Weekly Initial Jobless Claims data from the US.

This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Apart from this, the broader risk sentiment might further contribute to producing short-term opportunities ahead of the RBA meeting minutes and the latest Chinese inflation figures, scheduled for release during the Asian session on Friday.

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