AUD/USD remains on the defensive, holds above mid-0.7000s as traders await US NFP report

• AUD/USD edges lower for the second successive day, though lacks follow-through selling.
• A modest USD strength and the cautious market mood weigh on the risk-sensitive Aussie.
• Traders keenly await the release of the closely-watched US monthly jobs data (NFP report).

The AUD/USD pair extends the previous day's pullback from the 0.7155-0.7160 area, or its highest level since June 2022 and remains under some selling pressure for the second successive day on Friday. The pair remains depressed heading into the European session and is currently placed near the lower end of its daily range, just above mid-0.7000s.

A further US Dollar recovery from a nine-month low touched on Thursday turns out to be a key factor weighing on the AUD/USD pair. The better-than-expected Weekly Initial Jobless Claims data from the US raises the possibility of strong Nonfarm Payrolls (NFP) data and prompts traders to lighten their USD bearish bets. The popularly known NFP report is scheduled for release later during the early North American session and will play a key role in influencing the near-term USD price dynamics.

A surprisingly stronger print will further point to the underlying strength in the US labor market and force investors to re-evaluate their expectations for future rate hikes by the Fed. It is worth mentioning that the markets expect the Fed to reverse its hawkish stance amid concerns that headwinds stemming from rising borrowing costs could lead to a sharp economic slowdown. This led to a sharp USD fall following the announcement of the FOMC monetary policy decision on Wednesday.

The anxiety heading into the key data is evident from the prevalent cautious mood around the equity market. This is seen as another factor benefitting the safe-haven greenback and undermining the risk-sensitive Aussie. Spot prices, however, manage to hold comfortably above the 0.7000 psychological mark and the weekly low, warranting some caution for aggressive bearish traders. Hence, it will be prudent to wait for strong follow-through selling before confirming that the AUD/USD pair has topped out already and positioning for any meaningful corrective decline in the near term.

Technical levels to watch