AUD/USD eases from two-month peak on modest USD strength, downside seems cushioned

• AUD/USD witnesses a modest pullback from the vicinity of a two-month high set on Thursday.
• The USD short-covering move is seen as a key factor exerting downward pressure on the pair.
• The risk-on impulse offers some support to the risk-sensitive aussie and limits the downside.

The AUD/USD pair faces rejection near a technically significant 200-day SMA on Friday and witnessed a modest pullback from the vicinity of a two-month high touched the previous day. The pair, however, manages to bounce a few pips from the daily low and now seems to have stabilized around the 0.7100 round-figure mark.

The US dollar gains some positive traction and stalls its recent decline to the lowest level since late June, which, in turn, exerts some downward pressure on the AUD/USD pair. Despite signs of easing inflationary pressures in the US, the recent hawkish comments by several Fed officials indicated that the US central bank would stick to its policy tightening path. This is seen as a key factor that prompted traders to lighten their USD bearish bets on the last day of the week.

That said, a combination of factors might hold back the USD bulls from placing aggressive bets and help limit losses for the AUD/USD pair, at least for the time being. A modest pullback in the US Treasury bond yields could act as a headwind for the buck. Apart from this, a generally positive tone around the equity markets could further contribute to cap gains for the safe-haven greenback and lend some support to the risk-sensitive aussie. This, in turn, warrants some caution for bearish traders.

Nevertheless, the AUD/USD pair remains on track to post strong weekly gains, marking the third in the previous four, and register its highest weekly close since May. Traders now look forward to the US economic docket, featuring the release of the Preliminary Michigan US Consumer Sentiment Index.  This, along with the US bond yields and the broader risk sentiment, might influence the USD price dynamics during the early North American session and provide some impetus to the AUD/USD pair.

Technical levels to watch