AUD/USD eases from daily high, still well bid around mid-0.7100s amid modest USD weakness

• Modest USD pullback from the multi-year peak prompted some short-covering around AUD/USD.
• Stronger US PCE and a softer risk tone helped the USD to pare intraday losses and capped the pair.
• The prospects for rapid US rate hikes warrant caution before placing bullish bets around the major.

The AUD/USD pair held on to its strong intraday recovery gains, just above mid-0.7100s through the early North American session and moved little following the release of the US macro data.

The pair witnessed a short-covering bounce on Friday and moved away from its lowest level since early February, around the 0.7055 area touched the previous day amid broad-based US dollar weakness. Month-end flows prompted the USD bulls to take some profits off the table after the recent strong bullish run to the five-year peak. Apart from this, the USD downtick lacked any obvious fundamental catalyst and remained limited amid the prospects for a more aggressive policy tightening by the US central bank.

The Fed is expected to hike interest rates by 50 bps when it meets on May 3-4, and again in June and July, and ultimately lift rates to around 3.0% by the end of the year to curb soaring inflation. The bets were reaffirmed by the release of the March Personal Consumption Expenditure (PCE) Price Index. In fact, the Fed's favourite inflation gauge - the PCE Deflator - accelerated to the highest level since January 1982 and rose by 6.6% YoY in March. This helped offset a slight disappointment from the core PCE.

Additional details revealed that both Personal Income and Spending rose by 0.5% and 1.11% in March, respectively. This marked the sixth straight month of increase in income and the third successive month of rise in spending. Apart from this, a softer risk tone, assisted the safe-haven USD to trim a part of its intraday losses and acted as a headwind for the perceived riskier aussie. Hence, it will be prudent to wait for some follow-through buying before confirming that the AUD/USD pair has bottomed out in the near term.

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