AUD/USD retreats further from two-week high, slides below mid-0.7100s amid stronger USD

• AUD/USD witnessed a turnaround from a near two-week high touched earlier this Thursday.
• A softer risk tone drove flows away from the perceived riskier aussie amid renewed USD buying.
• Hawkish Fed expectations further acted as a tailwind for the USD ahead of Friday’s US CPI.

The AUD/USD pair extended its steady intraday descent through the mid-European session and dropped to a fresh daily low, around the 0.7140-35 region in the last hour.

The pair stalled this week's strong recovery move from sub-0.7000 levels and witnessed a turnaround from the 0.7185 region, or a near two-week high touched earlier this Thursday. As investors looked past stronger Chinese inflation figures, the emergence of fresh US dollar buying turned out to be a key factor that exerted pressure on the AUD/USD pair.

Data released on Thursday showed that China's headline CPI rose 0.4% MoM in November and the yearly rate accelerated to 2.3%, marking the fastest pace since August 2020. Moreover, the Producer Price Index surpassed expectations and came in at a 12.9% YoY rate, though a combination of factors held back traders from placing fresh bullish bets around the AUD/USD pair.

Mixed headlines on the Omicron variant of the coronavirus kept a lid on the recent optimism, which was evident from a softer tone around the equity markets. This, in turn, drove some haven flows towards the greenback and acted as a headwind for the perceived riskier aussie. The buck was further supported by firming expectations for a faster policy tightening by the Fed.

In the latest developments, BioNTech and Pfizer said on Wednesday that a three-shot course of their COVID-19 vaccine was able to neutralise the Omicron variant in a laboratory test. This, however, was overshadowed by the fact that the UK Prime Minister Boris Johnson on Wednesday imposed fresh COVID-19 restrictions in England to slow the spread of the new variant.

Nevertheless, the AUD/USD pair, for now, seems to have snapped three consecutive days of the winning streak as traders start repositioning for Friday's release of the US consumer inflation figures. The markets have been pricing in the possibility of an eventual Fed liftoff in May 2022 amid worries about the persistent rise in inflationary pressure. Hence, the latest US CPI report will influence the USD price dynamics and provide a fresh impetus to the AUD/USD pair.

In the meantime, traders on Thursday will take cues from the only release of the US Weekly Initial Jobless Claims, due later during the early North American session. Apart from this, the broader market risk sentiment will drive the USD and allow traders to grab some short-term trading opportunities around the AUD/USD pair.

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