AUD/USD retreats from session highs, clings to modest gains above 0.7300

• AUD/USD staged a rebound during the European session on Friday.
• US Dollar Index stays in a consolidation phase following Thursday's rally.
• University of Michigan will release the preliminary Consumer Sentiment Index for September.

After dropping to its lowest level since late August at 0.7273 on Thursday, the AUD/USD pair stayed relatively quiet during the Asian trading hours on Friday but managed to stage a rebound in the early European session. Nevertheless, the pair lost its recovery momentum near 0.7320 and erased a portion of its daily gains. As of writing, the pair was still up 0.22% on the day at 0.7305.

DXY rally loses steam on Friday

Rising US Treasury bond yields and the upbeat Retail Sales data, which showed an unexpected increase in August, provided a boost to the greenback on Thursday. Reflecting the broad-based USD strength, the US Dollar Index (DXY) advanced to a multi-week high of 92.96. In the absence of significant fundamental developments and high-tier data releases, the DXY is moving sideways around 92.80 on Friday.

Later in the session, the University of Michigan will release the preliminary Consumer Sentiment Index data for September. Investors expect a modest improvement to 72.2 from 70.3 in August. 

The market reaction to Retail Sales data suggests that a better-than-expected consumer confidence report could help the USD end the week on a strong note, forcing AUD/USD to turn south and vice versa.

In the meantime, US stock index futures are down 0.2% on the day. In case Wall Street's main indexes remain on the back foot ahead of the weekend, the USD is likely to continue to outperform its risk-sensitive rivals.

Technical levels to watch for