AUD/USD recovers modestly from daily lows, steadies around 0.7750

• AUD/USD remains on track to snap two-day winning streak.
• US Dollar Index clings to daily gains around 89.90.
• Rising US Treasury bond yields continue to help USD gather strength.

The AUD/USD pair dropped to its lowest level in two days at 0.7725 in the early American session on Thursday before going into a consolidation phase. As of writing, the pair was down 0.63% on a daily basis at 0.7752.

DXY preserves its bullish momentum

The USD's market valuation remains the primary diver of AUD/USD's movements. Supported by the sharp upsurge witnessed in the US Treasury bond yields, the US Dollar Index (DXY) climbed to 89.96 on Thursday. After gaining more than 8% on Wednesday, the 10-year US Treasury bond yield extended its rally and rose to its highest level since March at 1.088%. Upbeat data from the US seems to have provided an additional boost to the USD as well.

Earlier in the day, the ISM reported that the Services PMI in December improved to 57.2 from 55.9 in November, showing that the economic activity in the service continued to expand at a strong pace despite lockdowns. At the moment, the DXY is up 0.4% at 89.88 and the 10-year T-bond yield is advancing 3.57% at 1.08%.

There won't be any significant macroeconomic data releases featured in the Australian economic docket on Friday and the greenback's performance is likely to continue to impact AUD/USD.

In the meantime, the risk-positive market environment, as reflected by impressive gains seen in Wall Street's main indexes, is helping the AUD show some resilience against the USD for the time being. Currently, the S&P 500 Index is trading at fresh all-time highs above 3,800, rising 1.45% on the day.

Technical levels to watch for