AUD/USD retreats from multi-month high, still well bid around 0.6800 mark amid weaker USD

• AUD/USD scales higher for the third straight day and climbs to a fresh multi-month high.
• Dovish remarks by Fed Chair Powell keep the USD depressed and offers some support.
• China’s COVID-19 woes turn out to be the only factor capping the upside for the major.

The AUD/USD pair gains traction for the third successive day on Thursday and maintains its bid tone through the first half of the European session. The pair, however, trims a part of its intraday gains and retreats to the 0.6815-0.6810 region during the first half of the European session.

The US Dollar languishes near a multi-month low in the wake of the overnight dovish comments by Federal Reserve Chair Jerome Powell and acts as a tailwind for the AUD/USD pair. In fact, Powell sent a clear message that the US central bank will soften its stance and said that it was time to moderate the pace of interest rate hikes. This leads to a further decline in the US Treasury bond yields and continues to weigh on the greenback.

Apart from this, a positive tone around the equity markets is seen as another factor undermining the safe-haven buck and benefitting the risk-sensitive Aussie. The AUD/USD bulls further took cues from a slight improvement in China's Caixin Manufacturing PMI, which unexpectedly rose to 49.4 in November from 49.2 in the previous month. The reading, however, marks the fourth successive monthly contraction amid widespread COVID-19 curbs.

This might keep a lid on any optimistic move in the markets and act as a headwind for the AUD/USD pair. That said, the underlying bearish sentiment surrounding the USD, along with a sustained breakout through the 0.6755-0.6765 horizontal resistance, supports prospects for additional gains. Hence, any meaningful pullback below the 0.6800 mark might still be seen as a buying opportunity and is more likely to remain limited.

Market participants now look to Thursday's US economic docket, highlighting the release of the Fed's preferred inflation gauge - the Core PCE Price Index - and ISM Manufacturing PMI. This, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and provide some meaningful impetus to the AUD/USD pair.

Technical levels to watch