AUD/USD remains depressed below 0.7100 despite subdued USD demand/positive risk tone

• AUD/USD extended its sideways price moves and remained well within the weekly trading range.
• The gloomy global economic outlook was seen as a key factor that capped the risk-sensitive aussie.
• Weaker US GPD print prompted some USD selling and helped limit any deeper losses for the major.

The AUD/USD pair continued with its struggle to gain any meaningful traction and remained confined in a range held since the beginning of the currency week. Spot prices remained on the defensive below the 0.7100 mark through the North American session and had a rather muted reaction to the US macro releases.

The Prelim US GDP report showed that the world's largest economy contracted by a 1.5% annualized pace during the first quarter of 2022. The reading was weaker than the advance estimate for a 1.4% decline and the 1.3% fall anticipated, which, in turn, prompted fresh US dollar selling and extended some support to the AUD/USD pair.

Apart from this, speculations that the Fed could pause the rate hike cycle later this year, along with a generally positive tone around the equity markets, weighed on the safe-haven greenback. That said, concerns about the worsening global economic outlook kept a lid on the optimistic move and acted as a headwind for the risk-sensitive aussie.

From a technical perspective, the one-week-old trading range constitutes the formation of a rectangle on short-term charts and points to indecision over the near-term trajectory for the AUD/USD pair. This comes despite the Reserve Bank of Australia's hawkish signal that a bigger interest rate hike is still possible in June and favours bearish traders.

The price action seems to suggest that the recent strong recovery move from the YTD low has run its course and the path of least resistance for the AUD/USD pair is to the downside. That said, sustained strength beyond the 0.7125 region will negate any near-term negative outlook and pave the way for a further appreciating move.

Technical levels to watch