- AUD/USD rises for the second day in a row amid the appearance of some selling around the USD.
- Pulling back US bond yields coupled with a positive risk tone weigh on the safe-haven USD.
- Recession fears and hawkish Fed expectations should cap USD losses and limit pair gains.
The pair AUD/USD extends the previous day’s bounce from a 1-1/2 week low and gains traction for the second day in a row on Thursday. The steady intraday rally continues throughout the European session and lifts the pair to a new daily high, around the 0.6975 area.
The appearance of some selling around the US dollar turns out to be a key factor lending support to the AUD/USD pair. In fact, the dollar, thus far, has been struggling to capitalize on this week’s nice recovery from its lowest level since July 5, amid the continued fall in treasury bond yields from United States. Furthermore, the recent stock market recovery is further weighing on the safe-haven USD and offering additional support to the risk-sensitive AUD.
However, it is likely that the dollar’s decline remains limited on the back of more aggressive comments from several Fed officials this week, hinting at more short-term interest rate hikes. In addition, growing fears of a recession, along with rising tensions between the US and China caused by the trip of the president of the House of Representatives of the USA, Nancy Pelosi, to Taiwan, could stop the optimistic movement of the markets. Such factors should act as a tailwind for the dollar and cap gains for the AUD/USD pair.
Investors may also be reluctant to open aggressive positions and would rather stay on the sidelines ahead of the US monthly NFP employment data due out on Friday. The popularly known NFP report could influence Fed rate hike expectations and play a key role in dollar price dynamics, which in turn would determine the next directional move for the AUD/USD pair.
Meanwhile, weekly data on initial jobless claims in the United States will be released on Thursday. This coupled with US bond yields will boost demand for the dollar and provide some lift to the AUD/USD pair. Aside from this, the broader market risk sentiment could also create some short-term opportunities.
AUD/USD technical levels
Source: Fx Street
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