AUD/USD remains confined in a range, seems vulnerable near 0.7100 mark

• AUD/USD witnessed a subdued price action through the early part of the European session.
• Omicron fears continued weighing on investors’ sentiment and the perceived riskier aussie.
• Fed rate hike bets underpinned the USD and further collaborated to cap gains for the major.

The AUD/USD pair lacked any firm directional bias and remained confined in a narrow trading band around the 0.7100 mark through the early part of the European session.

A combination of diverging forces failed to provide any meaningful impetus to the AUD/USD pair and led to a subdued/range-bound price action on Thursday. Growing concerns over the spread of the omicron variant of the coronavirus and its impact on the economic recovery continued weighing on investors' sentiment. This was evident from the prevalent cautious mood around the equity markets, which, in turn, acted as a headwind for the perceived riskier aussie.

On the other hand, the US dollar, so far, has struggled to gain any traction and was seen as the only factor lending some support to the AUD/USD pair. That said, market conviction that the Fed will tighten its monetary policy sooner rather than later continued lending some support to the greenback. In fact, investors started pricing in the possibility of at least a 50 bps rate hike by the end of 2022 in reaction to Fed Chair Jerome Powell's hawkish comments.

Powell said it's time to retire the word transitory as the risk of persistently higher inflation has increased. He further signalled that the Fed could speed up the tapering of its asset purchases. This, along with rebounding US Treasury bond yields, should help revive the USD demand. Hence, the AUD/USD pair's range-bound price action might still be categorized as a bearish consolidation phase, which supports prospect for an extension of the recent fall witnessed since late September.

Market participants now look forward to the US economic docket, featuring the release of Challenger Job Cuts and the usual Weekly Initial Jobless Claims. This, along with speeches by influential FOMC members, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from developments surrounding the coronavirus saga and the broader market risk sentiment to grab some short-term opportunities around the major.

Technical levels to watch