AUD/USD moves back above 0.7200, closer to one-week high amid modest USD pullback

• AUD/USD reversed an intraday dip to mid-0.7100s amid the emergence of fresh USD selling.
• Retreating US bond yields, less hawkish FOMC minutes continued weighing on the greenback.
• Geopolitical tensions, the risk-off impulse might cap the upside for the perceived riskier aussie.

The AUD/USD pair traded with a mild positive bias through the mid-European session and was last seen hovering around the 0.7200 mark, just a few pips below the one-week high.

The pair attracted some dip-buying on Thursday and quickly reversed a knee-jerk slide to an intraday low, around mid-0.7100s touched in reaction to reports of shelling in eastern Ukraine. The emergence of fresh selling around the US dollar turned out to be one of the key factors that assisted the AUD/USD pair to regain some traction. The upside, however, remains capped amid the prevalent risk-off mood, which acted as a headwind for the perceived riskier aussie.

Intensifying the Russia-Ukraine conflict kept investors on the edge, which was evident from a generally weaker tone around the equity markets. In fact, Russian media reported that the Ukrainian military forces fired mortars and grenades in four Luhansk People's Republic (LPR) localities. Moreover, the Organization for Security and Co-operation (OSCE) in Europe recorded multiple shelling incidents along the line of contact in the East Ukraine in the early hours of Thursday.

Ukraine, however, denied the accusations, while the Russian Ministry of Defense released a video showing a logistics unit coming back to its home base after the completion of drills. Adding to this, the latest update from US satellite image company, Maxar Technologies, showed that Russia has pulled back some equipment from the Ukraine border. Hence, the market focus will remain on geopolitical developments, which will continue to play a key role in influencing the risk sentiment.

In the meantime, rising bets for an eventual interest rate hike by the Reserve Bank of Australia in 2022 might continue to lend support to the Australian dollar. On the other hand, retreating US Treasury bond yields, along with less hawkish FOMC minutes released on Wednesday could keep the USD bulls on the defensive. This, in turn, supports prospects for a further near-term appreciating move for the AUD/USD pair, though geopolitical tensions warrant caution.

Market participants now look forward to the US economic docket, featuring the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and housing market data during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Apart from this, the broader market risk sentiment would be looked upon for some meaningful trading opportunities around the major.

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