AUD/USD holds above 0.6500 amid softer USD, eyes US PCE for fresh impetus

• AUD/USD reverses an intraday dip on Friday and climbs back closer to the weekly high.
• Retreating US bond yields, a positive risk tone undermines the USD and offers support.
• Recession fears, aggressive Fed rate hike bets to limit the USD losses and cap the major.

The AUD/USD pair attracts some dip-buying around the 0.6475 area on Friday and climbs to a fresh daily high during the early European session. The pair is now placed above the 0.6500 psychological mark, though lacks bullish conviction.

A combination of factors drags the US dollar lower for the third successive day and offers some support to the AUD/USD pair. The spill-over effect of the UK central bank's move to calm the markets drags the benchmark 10-year US Treasury not away from a 12-year high touched earlier this week. Apart from this, a goodish recovery in the global risk sentiment weighs on the safe-haven greenback and drives some flows towards the perceived riskier aussie.

Despite the supporting factors, the AUD/USD pair struggles to gain meaningful traction. Mixed business activity data from China adds to worries about a deeper global economic downturn and should keep a lid on any optimism in the markets. Furthermore, hawkish Fed expectations could revive the USD demand and cap the AUD/USD pair, warranting caution before positioning for an extension of this week's bounce from the lowest level since April 2020.

Investors seem convinced that the US central bank will continue to hike interest rates at a faster pace to curb persistently high inflation. Hence, the focus remains glued to the release of the US Personal Consumption Expenditures (PCE) - the Fed's preferred inflation gauge. The data, along with the US bond yields and the broader risk sentiment, will influence the USD and provide a fresh impetus to the AUD/USD pair later during the early North American session.

Friday's US economic docket also features the release of the Chicago PMI and the revised Michigan Consumer Sentiment Index. This could further allow traders to grab short-term opportunities around the AUD/USD pair on the last day of the week.

Technical levels to watch