AUD/USD retreats from monthly tops amid a modest USD bounce, still above 0.7800

AUD/USD struggled to preserve its intraday gains to fresh monthly tops.
Surging US bond yields underpinned the USD and prompted some selling.
Sustained weakness below 0.7800 is needed to impress bearish traders.
The AUD/USD retreated around 50 pips during the early European session and was last seen hovering near the lower end of its daily trading range, around the 0.7800 mark.

The pair added to the previous day’s post-FOMC rebound from the 0.7700 mark and got an additional boost from Thursday’s stellar Australian employment detail. Bulls, however, struggled to capitalize on the move beyond the 0.7835-40 region amid some aggressive US dollar short-covering bounce.

The Fed on Wednesday indicated that it was in no rush to raise interest rates at least through 2023, albeit upgraded its economic projections. The central bank now predicts the economy to grow by 6.5% in the current year. Inflation is expected to exceed the Fed’s 2% target and rise 2.4% this year.
Apart from this, policymakers made no mention of the recent surge in long-term borrowing cost, nor any effort to combat those movements. This, in turn, pushed yields on long-end US government bonds to new cycle highs on Thursday and assisted the USD to recover a part of the overnight heavy losses.

Meanwhile, another sell-off in the US fixed income market raised fears about distress selling in other asset classes. This was evident from a modest pullback in the US equity futures, which should act as another headwind for the perceived riskier aussie and prompt some selling around the AUD/USD pair.

The pair, however, has managed to hold its neck just above the 0.7800 mark, at least for the time being, warranting some caution for bearish traders. This makes it prudent to wait for some strong follow-through selling before positioning for any further near-term depreciating move.

Investors now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims. This, along with the US bond yields, might influence the USD price dynamics and provided a fresh impetus to the AUD/USD pair.