AUD/USD surrenders modest intraday gains, flat-lined around mid-0.7200s

• AUD/USD struggled to preserve its intraday gains amid resurgent USD demand.
• The risk-on mood continued lending some support to the perceived riskier aussie.
• Investors now look forward to the US economic data for some trading opportunities.

The AUD/USD pair surrendered its modest intraday gains and was last seen trading just a few pips above the daily low, around mid-0.7200s during the early European session.

The US dollar made a solid comeback on Thursday and reversed a major part of the overnight losses back closer to the monthly swing low. This, in turn, was seen as a key factor that acted as a headwind for the AUD/USD pair and attracted some selling near the 0.7265 region.

The greenback drew some support from the overnight spike in the US Treasury bond yields that followed soft demand for a $56 billion auction of seven-year notes. In fact, the yield on the benchmark 10-year US government bond shot to 1.56% for the first time since November 29.

Apart from this, the Fed's hawkish outlook, indicating at least three rate hikes next year, pushed the two-year yield to the highest since March 2020 and helped revive the USD demand. That said, the underlying bullish tone might cap the upside for the safe-haven greenback.

The global risk sentiment remained well supported by the optimism over signs that the Omicron variant might be less severe than feared. This was evident from an extension of the recent bullish run in the equity markets, which could further lend support to the perceived riskier aussie.

This warrants some caution before confirming that the AUD/USD pair's recent bounce from the key 0.7000 psychological mark, or the YTD low has lost steam amid thin year-end trading volumes. Market participants now look forward to the US macro data for a fresh impetus.

The US economic docket features the release of Weekly Initial Jobless Claims and Chicago PMI. This, along with the US bond yields, will influence the USD. Traders might also take cues from the broader market risk sentiment to grab some opportunities around the AUD/USD pair.

Technical levels to watch