AUD/USD clings to gains just above 0.7200 mark, upside seems limited

• AUD/USD gained some positive traction on Thursday and snapped two days of the losing streak.
• The risk-on mood prompted some profit-taking around the safe-haven USD and extended support.
• Hawkish Fed expectations should help limit the USD losses and cap any further gains for the major.

The AUD/USD pair maintained its bid tone through the early part of the European session and was last seen trading near daily tops, just above the 0.7300 mark.

The pair managed to gain some positive traction on Thursday and has now reversed a major part of the previous day's slide to over one-month lows. The AUD/USD pair, for now, seems to have snapped two consecutive days of the losing streak and was supported by a combination of factors.

Following the recent runup to the highest level since September 2020, the US dollar witnessed a modest pullback from the highest level since September 2020. The risk-on mood prompted the USD bulls to take some profits off the table and provided a goodish lift to the perceived riskier aussie.

The intraday uptick seemed unaffected by disappointing Chinese Manufacturing PMI print for September, which unexpectedly dropped into the contraction territory for the first time since February 2020. However, the services sector returned to expansion and offered some relief to investors.

Meanwhile, expectations that the Fed will begin tapering its asset purchases as soon as November and hike interest rates in 2020 should act as a tailwind for the greenback. This, in turn, warrants some caution before placing aggressive bullish bets around the AUD/USD pair.

Even from a technical perspective, the overnight sustained weakness below the 0.7220 area marked a bearish breakdown and supports prospects for further downfall. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out quickly.

Market participants now look forward to the US macro releases – the final GDP print and the usual Weekly Initial Jobless Claims. This, along with Fed Chair Jerome Powell's testimony and the US bond yields, will influence the USD and provide a fresh impetus to the AUD/USD pair.

Technical levels to watch