AUD/USD drops to 0.7700 neighbourhood, closer to weekly lows

• A goodish pickup in the USD demand prompted some selling around AUD/USD on Friday.
• Biden's budget plan pushed the US bond yields higher and provided a lift to the greenback.
• The risk-on mood might help limit any further losses ahead of Friday’s key US inflation data.

The AUD/USD pair witnessed some selling during the early European session and dropped to four-day lows, around the 0.7715 region in the last hour.

Following a brief consolidation through the early part of the trading action on Friday, the pair met with some fresh supply and extended this week's rejection slide from the vicinity of the 0.7800 mark. Some follow-through uptick in the US Treasury bond yields provided a goodish lift to the US dollar. This, in turn, was seen as a key factor that exerted downward pressure on the AUD/USD pair.

In fact, the yield on the benchmark 10-year US government bond recorded the steepest rise in over a week on Thursday on reports about the Biden administration’s multi-trillion spending plan. The US President Joe Biden is expected to propose a $6 trillion budget for the fiscal year 2022 on Friday. This, along with mostly upbeat US economic data, raised bets for an earlier Fed lift-off.

The latest development further fueled worries about rising inflationary pressures, which might force the Fed to tighten its monetary policy sooner rather than later. Hence, the focus will remain on Friday's key release of the core PCE Price Index. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the AUD/USD pair.

Meanwhile, the global markets cheered the Biden administration’s multi-trillion spending plan. This was evident from an extension of a strong rally in the global equity markets, which might extend some support to the perceived riskier aussie. That said, a sustained break below the 0.7700 level would mark a bearish break for the AUD/USD pair and pave the way for additional losses.

Technical levels to watch