AUDUSD sits near its highest level since September, lacks follow-through

• AUDUSD adds to the overnight rally and climbs to its highest level since September 22.
• The softer US CPI-inspires USD selling remains unabated and offers support to the pair.
• The lack of follow-through buying warrants some caution for aggressive bullish traders.

The AUDUSD pair attracts some buying near the 0.6580-0.6575 region on Friday and climbs to its highest level since September 22 during the early European session. The pair is currently hovering around the mid-0.6600s and remains well supported by the prevalent selling bias surrounding the US Dollar.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, hits a two-and-half-month low amid expectations that the Fed will slow the pace of its policy tightening. The softer US consumer inflation figures released on Thursday reaffirmed bets for smaller rate hikes by the US central bank. The markets are currently pricing in over an 80% chance of a 50 bps increase at the December FOMC meeting.

Furthermore, expectations for peak US interest rates also dropped below 5%, which is evident from a further decline in the US Treasury bond yields. Apart from this, a sharp rise in the equity markets is seen undermining the safe-haven buck and offering additional support to the risk-sensitive Aussie. That said, worries about headwinds stemming from China's economically disruptive zero-COVID policy might keep a lid on the latest optimism.

This, along with the lack of strong follow-through buying, warrants some caution before placing fresh bullish bets around the AUDUSD pair and positioning for any further gains, at least for now. Traders now look to the US economic docket, highlighting the release of the Preliminary Michigan US Consumer Sentiment Index. This, along with the US bond yields and the broader risk sentiment, will influence the buck and provide some impetus to the AUDUSD pair.

Technical levels to watch