AUDUSD recovers early lost ground amid weaker USD, remains below mid-0.6700s

• AUDUSD attracts some dip-buying on Thursday, though the lacks follow-through.
• Bets for smaller rate hikes by the Fed and a positive risk tone weigh on the buck.
• China’s COVID-19 woes and a dovish RBA stance should cap any further upside. 

The AUDUSD pair reverses its intraday dip to sub-0.6700 levels and climbs back closer to the top end of its daily range during the early European session. The pair is currently placed just below mid-0.6700s and for now, seems to have stalled its pullback from a two-month high touched earlier this week.

The US Dollar continues with its struggle to register any meaningful bounce from its lowest level since August 12, which, in turn, is seen as a key factor offering support to the AUDUSD pair. Investors now seem convinced that the Federal Reserve will soften its hawkish stance to avoid recession. This, along with a goodish recovery in the US equity futures, undermines the safe-haven greenback and benefits the risk-sensitive Aussie.

That said, concerns about economic headwinds stemming from a new COVID-19 outbreak in China might keep a lid on any optimistic move in the markets. Furthermore, Wednesday's upbeat US Retail Sales data might have forced investors to scale back their bets for a less aggressive policy tightening by the Fed. This, along with the risk of a further escalation of geopolitical tensions, could act as a tailwind for the buck and cap the AUDUSD pair.

Adding to this, a rather muted reaction to the mostly upbeat Australian employment details suggests that the path of least resistance for the AUDUSD pair is to the downside. In fact, the official data showed that the number of employed people in Australia rose by 32.2K in October, beating expectations for a reading of 15K. Moreover, the domestic jobless rate dropped to a nearly five-decade low level of 3.4% during the reported month.

Investors, however, seem convinced that the figures were not strong enough for the Reserve Bank of Australia to shift from its dovish course. Hence, any subsequent move-up might continue to attract some sellers at higher levels and runs the risk of fizzling out quickly. That said, a sustained move beyond the 0.6800 mark will negate the negative outlook and trigger a fresh bout of a short-covering move around the AUDUSD pair.

Moving ahead, traders now look forward to the US economic docket - featuring the release of the Philly Fed Manufacturing Index and Weekly Initial Jobless Claims. Apart from this, speeches by a slew of influential FOMC members will drive the USD demand and provide some meaningful impetus to the AUDUSD pair. This, along with the broader risk sentiment, might contribute to producing short-term trading opportunities around the major.

Technical levels to watch