• The Aussie consolidates at six-week highs near 0.6700.
• Investors are pricing in a softer Fed monetary tightening ahead.
• China's decision to ease COVID-19 restrictions has contributed to improving sentiment.

The Australian Dollar keeps rallying for the second consecutive day, buoyed by a weak US dollar on the back of increasing hopes that the US Federal Reserve will start to relax its monetary tightening path over the coming months as well as easing COVID-19 restirctions in key trading neighbour China.

On Friday, the pair appreciates about 0.8%, and is nearly 4% higher over the last two days, after having hit a fresh six-week high at 0.6690, with bearish attempts capped above 0.6650 so far.

Hopes of Fed easing have boosted market sentiment

Investors’ appetite for risk surged on Thursday following the release of cooler-than-expected US Consumer Prices Index data. Yearly inflation slowed down to 7.7% in October from 8.2% in the previous month, beating expectations of an 8% reading.

These figures suggest that inflationary pressures might have peaked and provided some leeway to the US central bank to ease its monetary tightening cycle over the next months.

The US Dollar and Treasury yields tanked in the data, sending equities and risk-sensitive currencies like the AUD skyrocketing over the last sessions.

Beyond that, news that China is relaxing some of its strict COVID-19 restrictions and cutting quarantine periods has eased concerns about the potential impact on the global economy of a new set of lockdowns which has boosted investor sentiment further. As a result of the news the price of Iron Ore, a key export of Australia to China has rallied substantially overnight and its correlation to AUD will help boost the currency.  

The economic calendar is rather thin today with the US celebrating Veterans Day. The only relevant indicator is the Preliminary Michigan Sentiment Index, which has eased beyond expectations, to 54.7 from 59.9 in October while the consensus anticipated a softer decline to 59.5.

Technical levels to watch