• AUD/USD lacked firm directional bias and seesawed between tepid gains/minor losses on Friday.
• The cautious market mood acted as a headwind for the perceived riskier aussie and capped gains.
• Rebounding US bond yields revived the USD demand and also held bulls from placing fresh bets.

The AUD/USD pair consolidated its recent gains to the highest level since early July and remained confined in a range through the first half of the trading action on Friday. The pair was last seen trading just below mid-0.7500s, nearly unchanged for the day.

Worries about a faster-than-expected rise in inflation, along with signs of a global economic slowdown have raised fears about the risk of stagflation. The market concerns were further fueled by Thursday's dismal US GDP report, which showed that the growth in the world's largest economy decelerated sharply during the third quarter of 2021. This, in turn, weighed on investors' sentiment and acted as a headwind for the perceived riskier aussie.

Meanwhile, the cautious market mood drove some haven flows towards the US dollar, which was further underpinned by a strong follow-through uptick in the US Treasury bond yields. This was seen as another factor that underpinned the greenback and collaborated to cap gains for the AUD/USD pair. In fact, the yield on the benchmark 10-year US government bond shot back above the 1.60% threshold during the Asian session on Thursday amid hawkish Fed expectations.

The markets seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation and have been pricing in the possibility of a rate hike in 2022. Hence, the focus will be on Friday's release of the US Core PCE Price Index, due later during the early North American session. The data will set the tone heading into next week's FOMC monetary policy meeting and provide a fresh impetus to the AUD/USD pair.

In the meantime, speculations for an interest rate hike by the Reserve Bank of Australia (RBA) might continue lending some support to the AUD/USD pair and help limit the downside. The market bets rose after Wednesday's RBA trimmed mean inflation for the third quarter indicated that consumer cost pressures are getting entrenched. This, in turn, warrants some caution for bearish traders and positioning for any meaningful corrective pullback.

Technical levels to watch