AUD/USD defends 0.6730 as upside looks capped for USD Index, yields extend gains

• AUD/USD is putting efforts into defending the 0.6730 support despite a dismal market mood.
• The 10-year US Treasury yields have printed a fresh three-month high of 4.02%.
• Upbeat US Manufacturing New Orders Index data is fueling US Treasury yields.

The AUD/USD pair has demonstrated a buying interest after dropping to near 0.6730 in the Asian session. The Aussie asset is expected to turn sideways as wild movements are generally followed by volatility contraction. Also, the capped upside in the US Dollar Index (DXY) is restricting range extension in the Aussie asset.

Market mood is displaying caution as investors are worried that more rates from the Federal Reserve (Fed) will push the United States economy into a recession. S&P500 futures have incurred more losses, carry-forwarding weak Wednesday’s session. Investor shave underpinned the risk aversion theme whose impact is clearly visible on the US government bonds. The 10-year US Treasury yields are constantly refreshing their three-month high as the Fed is set to push interest rates by 5% by summer.

At the press time, the 10-year US Treasury yields have printed a high of 4.02%. However, the USD Index is struggling to find direction after weak US Manufacturing PMI data.

On Wednesday, the US ISM reported a surprise decline in the Manufacturing PMI figures. The economic data contracted consecutively for the fourth time, landed at 47.7, lower than the consensus of 48.0 but higher than the former release of 47.4.

The catalyst that is supporting yields is the Manufacturing New Orders Index data, which indicates robust forward demand and could fuel inflationary pressures. The economic data jumped strongly to 47.0 from the expectations of 43.7 and the former release of 42.5, portraying a bright outlook.

Meanwhile, a sheer decline in the monthly Australian monthly Consumer Price Index (CPI) is expected to restrict the Australian Dollar to the downside. The monthly CPI (Jan) dropped significantly to 7.4% from the expectations of 8.0% and the prior release of 8.4%. A mammoth decline in the inflation data mush has provided a big relief to Reserve Bank of Australia (RBA) policymakers. Also, a decline in the Gross Domestic Product (GDP) (Q4) was a cherry on the cake.