AUD/USD remains depressed near multi-week low amid stronger USD, risk-off mood

• AUD/USD remains depressed near a multi-week low and is pressured by a combination of factors.
• Hawkish Fed expectations, elevated US bond yields lift the USD back closer to a two-decade high.
• The risk-on mood further underpins the safe-haven buck and weighs on the risk-sensitive aussie.

The AUD/USD pair struggles to capitalize on its intraday bounce from sub-0.6800 levels, or the lowest level since June 18 and remains depressed through the early North American session. The pair is currently placed around the 0.6820 region and seems vulnerable to prolonging the recent descending trend witnessed over the past three weeks or so.

The US dollar regains positive traction on Thursday and inches back closer to a 20-year peak touched earlier this week amid hawkish Fed expectations. The markets seem convinced that the US central bank will stick to its aggressive policy tightening path to tame inflation and have been pricing in a 75 bps rate hike move in September. This remains supportive of a further rise in the US Treasury bond yields and continues to underpin the greenback, which, in turn, is seen exerting downward pressure on the AUD/USD pair.

In fact, the yield on the 2-year US government bond, which is highly sensitive to Fed rate hike expectations, hits a 15-year high. Apart from this, better-than-expected US Weekly Initial Jobless Claims data and the prevalent risk-off environment offers additional support to the safe-haven buck. The market sentiment remains fragile amid growing worries about a deeper global economic downturn. The fears were further fueled by Thursday's disappointing release of the Caixin/Markit Chinese Manufacturing PMI, which fell to 49.5 in August.

Furthermore, economic headwinds from fresh COVID-19 lockdowns temper investors' appetite for perceived riskier assets. This is evident from a generally weaker tone around the equity markets, which further contributes to the offered tone surrounding the risk-sensitive aussie. The fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside and any attempted recovery could be seen as a selling opportunity. Traders now look to the US ISM Manufacturing PMI for short-term opportunities.

The focus, however, remains glued to the closely-watched US monthly employment details, due for release on Friday. The popularly known NFP will provide a fresh insight into the economy's health in the face of rising rates and stubbornly high inflation. This, in turn, will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the AUD/USD pair.

Technical levels to watch