AUD/USD remains on the defensive, around mid-0.6700s ahead of US economic data

• AUD/USD struggled to gain any meaningful traction on Friday despite subdued USD demand.
• Dismal Chinese GDP fueled recession fears and capped the upside for the risk-sensitive aussie.
• Investors now look forward to important US macro data for short-term trading opportunities.

The AUD/USD pair failed to capitalize on the previous day's modest rebound from over a two-year low and attracted fresh selling near the 0.6765 region on Friday. The pair remained on the defensive through the first half of the European session, though has managed to hold its neck comfortably above the 0.6700 mark.

Following the previous day's pullback from a fresh 20-year high, the US dollar witnessed a subdued price move amid reduced bets for a more aggressive policy tightening by the Fed. Fed Governor Christopher Waller and St. Louis Fed President Jim Bullard - two of the most hawkish FOMC members - pushed back against market expectations for a 100 bps rate hike later this month. This, in turn, led to a further decline in the US Treasury bond yields, which acted as a headwind for the USD and offered some support to the AUD/USD pair.

That said, growing fears about a possible global recession helped limit the downside for the safe-haven buck and continued weighing on the risk-sensitive aussie. Investors remain concerned that rapidly rising borrowing costs, along with the ongoing Russia-Ukraine war and fresh COVID-19 curbs in China, would pose challenges to global economic growth. The fears were further fueled by the dismal Chinese Q2 GDP print released on Friday. The fundamental backdrop supports prospects for additional losses for the AUD/USD pair.

Bearish traders, however, seemed reluctant to place aggressive bets ahead of important US macro data. Friday's US economic docket features the monthly Retail Sales, the Empire State Manufacturing Index, Industrial Production and Michigan Consumer Sentiment Index. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and provide some impetus to the AUD/USD pair.

Technical levels to watch