• AUD/USD edged lower on Friday and snapped three successive days of the winning streak.
  • The downtick could be attributed to some profit-taking following this week’s strong rally.
  • The risk-on mood should help limit any meaningful slide for the perceived riskier aussie.

The AUD/USD pair remained on the defensive through the first half of the trading on Friday and was last seen hovering around the 0.7230 region heading into the European session.

The pair witnessed some selling on the last day of the week and for now, seems to have stalled this week’s positive move to an over one-month high, around mid-0.7200s touched on Thursday. The downtick lacked any obvious fundamental catalyst and could be attributed to some profit-taking following a strong rally of around 150 pips over the past three sessions.

That said, the prevalent risk-on mood – as depicted by a positive tone around the equity markets – should continue to lend support to the perceived riskier aussie. Investors turned optimistic amid reports that the current vaccines may be more effective in fighting the new variant than first thought and that the Omicron infections are less likely to lead to hospitalization.

Meanwhile, receding fears about the potential economic fallout from the fast-spreading Omicron variant kept the safe-haven US dollar depressed near the weekly low. This could further act as a tailwind for the AUD/USD pair and help limit any deeper losses. Traders might also be reluctant to place aggressive bets amid the year-end thin liquidity conditions.

The short-term fundamental backdrop seems tilted in favour of bullish traders, though the Fed’s hawkish outlook should limit any meaningful USD downfall and cap gains for the AUD/USD pair. It is worth recalling that the so-called dot plot indicated that the Fed could hike interest rates at least three times next year amid rising inflationary pressures.

The expectations were reaffirmed by Thursday’s strong Personal Consumption Expenditures (PCE) data. In fact, the Fed’s preferred inflation gauge — the PCE Price Index — accelerated to 5.7% YoY in November, marking the largest annual growth since 1982. This could have boosted bets for an eventual Fed liftoff in March 2022, which should help revive the USD demand.

Technical level to watch

This article was originally published by Fxstreet.com.Read the original article here.