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AUD/USD gained positive traction and pared part of the overnight slide to multi-week lows.
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The USD moves away from a two-decade high and turns out to be a key factor lending support.
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Aggressive Fed rate hike bets to limit the USD losses and cap the pair ahead of the NFP report.
The AUD/USD pair attracts some buying on Friday and recovers a part of the previous day’s losses to the 0.6770 area, or the lowest level since July 18. The pair builds on its steady intraday ascent and moves back above the 0.6800 mark, hitting a fresh daily high during the first half of the European session.
The US dollar edged lower and retreated further from the two-decade highs hit on Thursday, which in turn, provided some support to the AUD/USD pair. A softer tone around US Treasury bond yields kept US dollar bulls on the defensive amid some restive trade ahead of US monthly jobs data. Beyond that, signs of stabilization in financial markets further weaken safe havens and benefit risk-sensitive Aussies
That said, fears of a deepening recession, economic headwinds stemming from fresh COVID-19 lockdowns in China and the war in Ukraine should cap any optimistic moves. Moreover, expectations that the Fed will continue to tighten its monetary policy to control inflation will act as a tailwind to support US bond yields and the greenback. As a result, be cautious before placing aggressive bullish bets around the AUD/USD pair.
It is worth mentioning that the markets are pricing in a supersized 75 bps rate hike at the September FOMC meeting and the bets were reaffirmed by the recent hawkish remarks by several Fed officials. Traders now look to the US NFP report, which will provide a fresh insight into the economy’s health and influence the USD price dynamics. This, in turn, will drive the AUD/USD pair ahead of the Reserve Bank of Australia (RBA) meeting next week.
Technical levels to watch
AUD/USD
