AUD/USD edges higher to 0.7180 area, lacks bullish conviction ahead of US CPI

• AUD/USD reversed an early dip and inched back closer to over a two-week high set on Wednesday.
• A positive risk tone extended support to the perceived riskier aussie amid subdued USD demand.
• The upside seems limited as traders preferred to wait on the sidelines ahead of the US CPI report.

The AUD/USD pair managed to reverse modest intraday losses and climbed to a fresh daily high, around the 0.7180-0.7185 region during the early European session.

The pair attracted some dip-buying near the 0.7160 area on Thursday and inched back closer to a two-and-half-week high touched in the previous day. A generally positive tone around the equity markets turned out to be a key factor that benefitted the perceived riskier aussie amid subdued US dollar demand.

That said, elevated US Treasury bond yields – bolstered by hawkish Fed expectations – continued acting as a tailwind for the greenback. This, in turn, should keep a lid on any meaningful upside for the AUD/USD pair ahead of the US consumer inflation figures, due for release during the North American session.

Investors seem convinced that the Fed would tighten its monetary policy at a faster pace to contain stubbornly high inflation and have been pricing in a 50 bps rate hike in March. Hence, the US CPI report for January would be looked upon for fresh clues about the pace of the Fed's policy tightening cycle.

This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the AUD/USD pair. This makes it prudent to wait for a strong follow-through buying before positioning for an extension of the pair's recovery move from the two-year low set in January.

Apart from this, Thursday's US economic docket also features the release of the usual Weekly Initial Jobless Claims data. This, along with the US bond yields, will drive the USD demand. Traders will further take cues from the broader market risk sentiment for some short-term opportunities around the AUD/USD pair.

Technical levels to watch