AUD/USD slides below 0.6500 mark, hangs near daily low amid modest USD uptick

• AUD/USD struggles to preserve its intraday gains amid the emergence of some USD dip-buying.
• Aggressive Fed rate hike bets, elevated US bond yields continue to act as a tailwind for the buck.
• The cautious mood further benefits the safe-haven USD and weighs on the risk-sensitive aussie.

The AUD/USD pair surrenders a major part of its intraday gains and slips below the 0.6500 psychological mark, back closer to the daily low during the first half of the European session.

A combination of supporting factors helps to revive the US dollar demand, which, in turn, keeps a lid on the AUD/USD pair's early positive move closer to the 0.6550 supply zone. The recent hawkish remarks by several Fed officials reaffirmed expectations that the US central bank will tighten its monetary policy at a faster pace. In fact, the markets have been pricing in the possibility of another supersized 75 bps Fed rate hike move in November. This remains supportive of elevated US Treasury bond yields and acts as a tailwind for the buck. Apart from this, the prevalent cautious market mood further underpins the safe-haven greenback and contributes to capping the risk-sensitive aussie.

The market sentiment remains fragile amid concerns that rapidly rising borrowing costs will lead to a deeper global economic downturn. Adding to this, the risk of a further escalation in the Russia-Ukraine conflict tempers investors' appetite for riskier assets. This, along with the Reserve Bank of Australia's (RBA) decision to slow the pace of policy tightening and raise interest rates by 25 bps earlier this week, seems to weigh on the Australian dollar. The fundamental backdrop seems tilted in favour of bearish traders and suggests that the path of least resistance for the AUD/USD pair is to the downside. Hence, any attempted recovery move runs the risk of fizzling out quickly.

Traders, however, might refrain from placing aggressive bets and prefer to move to the sidelines ahead of the closely-watched US monthly employment details, due for release on Friday. The popularly known NFP report will play a key role in influencing Fed rate hike expectations. The outlook should help determine the next leg of a directional move for the greenback and the AUD/USD pair. In the meantime, traders on Thursday will take cues from the US Weekly Initial Jobless Claims data. Apart from this, speeches by influential FOMC members and the US bond yields will drive the USD demand. This, along with the broader risk sentiment, will be looked upon for short-term trading opportunities.

Technical levels to watch