AUD/USD struggles below 0.7000 amid broad-based USD strength, seems vulnerable

• AUD/USD met with a fresh supply near the 0.7035 area on Thursday amid resurgent USD demand.
• Recession fears took its toll on the global risk sentiment and benefitted the safe-haven greenback.
• The lack of follow-through selling warrants some caution before positioning for any further decline.

The AUD/USD pair witnessed an intraday pullback from the vicinity of the weekly high and now seems to have stalled its solid recovery move from a one-month low touched earlier on Tuesday. The retracement slide extended through the early part of the European session and dragged spot prices to a fresh daily low, around mid-0.6900s in the last hour.

The mixed Australian employment figures, along with the emergence of fresh US dollar buying, turned out to be key factors that exerted some downward pressure on the AUD/USD pair. The Australian Bureau of Statistics reported that the unemployment rate held steady at 3.9% in May as against consensus estimates pointing to a dip to 3.8%. This, to a larger extent, overshadowed the headline figures, which showed that the number of employed people rose by 60.6K versus the 25.0K rise anticipated.

Apart from this, a fresh wave of the global risk-aversion trade helped the USD to reverse the overnight post-FOMC losses and further weighed on the risk-sensitive. The Fed on Wednesday projected a slowdown in the economic growth and rising unemployment in the months to come. Against the backdrop of global supply chain disruptions caused by the Russia-Ukraine war and the COVID-19 outbreak in China, the gloomy outlook further fueled recession fears and took its toll on the risk sentiment.

The fundamental backdrop favours bearish traders, though the lack of follow-through selling warrants some caution before positioning for any further depreciating move for the AUD/USD pair. Traders now look forward to the US economic docket - featuring the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and housing market data. This, along with the US bond yields and the broader risk sentiment, would influence the USD and provide a fresh impetus to the AUD/USD pair.

Technical levels to watch