The AUD/USD pair recovered from an intraday dip to a fresh YTD low as the US Dollar retracement slide continued. The spot prices climbed back closer to the 0.6600 round-figure mark during the early European session and drew support from some follow-through US Dollar selling.
USD Retracement and Fed Rate Hike
The USD Index, which tracks the Greenback against a basket of currencies, retreated further from a three-month high amid reduced bets for more aggressive policy tightening by the Federal Reserve. The data released on Thursday showed a larger-than-expected rise in the US Weekly Jobless Claims and was seen as the first sign of a softening labor market. This forced investors to reassess the possibility of a 50 bps lift-off at the upcoming FOMC meeting on March 21-22, which is evident from the ongoing downfall in the US Treasury bond yields and continues to weigh on the buck.
US Bond Yields
The falling US bond yields also added to the USD retracement. The US 10-year Treasury bond yields dropped below 1.5% on Thursday for the first time in three weeks, reflecting the market’s shift towards a more dovish Fed outlook. The lower yields make the US Dollar less attractive for investors seeking higher returns.
However, the risk-off sentiment may cap gains for the risk-sensitive Aussie ahead of the key US Non-Farm Payroll (NFP) report. The market participants are waiting for the US NFP report, which is scheduled to be released later today. The report is expected to show a gain of 182,000 jobs in February, up from 49,000 jobs in January. The NFP report is closely watched by investors as it provides a snapshot of the US labor market and can impact the Fed’s monetary policy decisions.
In conclusion, the AUD/USD pair rebounded from a fresh YTD low as the US Dollar retracement slide continued amid reduced bets for a 50 bps Fed rate hike in March and falling US bond yields. However, the risk-off sentiment may cap gains for the Aussie ahead of the US NFP report. The market participants will closely watch the NFP report, which can provide further insight into the Fed’s monetary policy outlook.