AUD/USD clings to gains near three-day highs, around mid-0.7300s

• A combination of factors assisted AUD/USD to gain traction for the second successive day.
• Friday’s dismal US consumer sentiment, sliding US bond yields undermined the greenback.
• Upbeat Chinese macro data lifted the aussie and remained supportive of the positive move.

The AUD/USD pair maintained its bid tone through the early European session and was last seen hovering near three-day highs, around mid-0.7300s.

The pair built on Friday's recovery move from the 0.7275 region, or over one-month lows and gained some follow-through traction on the first day of a new week. This marked the second successive day of a positive move and was sponsored by a combination of factors.

The University of Michigan survey released on Friday showed that the US consumer sentiment plunged to a 10-year low in November. This, along with sliding US Treasury bond yields, undermined the US dollar on Monday and provided a modest lift to the AUD/USD pair.

Apart from this, mostly upbeat Chinese macro data further acted as a tailwind for the Australian dollar and remained supportive of the move up. That said, the prospects for an early policy tightening by the Fed could cap any further gains for the AUD/USD pair.

Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflationary pressures. In fact, the Fed funds futures indicate a 50% probability of a rate hike in July 2022 and a high likelihood of another by November.

Even from a technical perspective, last week's sustained break and acceptance below 100-day SMA favours bearish traders. Hence, it will be prudent to wait for a strong follow-through selling before confirming that the AUD/USD pair has bottomed out and placing aggressive bullish bets.

Market participants now look forward to the US economic docket, featuring the release of the Empire State Manufacturing Index. Traders will also take cues from the US bond yields and the market risk sentiment, which could influence the USD and provide some impetus to the AUD/USD pair.

Technical levels to watch