AUD/USD retreats sharply from multi-week high, plunges to mid-0.6900s ahead of US PCE

• AUD/USD witnesses a turnaround from a multi-week high touched earlier this Friday.
• Rebounding US bond yields revives the USD demand and attracts selling around the pair.
• The risk-on mood could cap the USD as traders await the US PCE report for a fresh impetus.

The AUD/USD pair retreats sharply from its highest level since June 17 and weakens further below the 0.7000 psychological mark heading into the North American session. The sharp intraday descent drags spot prices to a fresh daily low, closer to mid-0.6900s in the last hour.

A modest bounce in the US Treasury bond yields assists the US dollar to trim a part of its early losses to a three-and-half-week low touched earlier this Friday. This, in turn, attracts some selling around the AUD/USD pair, though the prevalent risk-on mood could act as a headwind for the safe-haven buck and limit the downside for the risk-sensitive aussie.

Investors turn optimistic amid expectations that a global economic downturn would force major central banks to ease off their aggressive policy tightening cycle. This was evident from a generally positive tone around the equity markets, which, along with the less hawkish FOMC decision and contracting the US economy, might cap the USD and offer support to the AUD/USD pair.

It is worth recalling that Fed Chair Jerome Powell hinted on Wednesday that the US central bank could slow the pace of the current rate hiking campaign at some point. Furthermore, Thursday's disappointing US Q2 GDP print confirmed a technical recession and further fueled speculations that the Fed would not raise interest rates as aggressively as previously estimated.

Next on tap is the release of the US Personal Consumption Expenditures (PCE report) - the Fed preferred inflation gauge - due in a short while from now. The data, along with the US bond yields, would influence the USD price dynamics. Traders would further take cues from the broader risk sentiment to grab short-term opportunities around the AUD/USD pair.

Technical levels to watch