AUD/USD sticks to modest gains around 0.6630, upside seems limited ahead of US NFP

• AUD/USD attracts some buying on Friday, though any further upside seems elusive.
• China’s economic woes and the worsening US-China relations could cap the Aussie.
• Bets for more Fed rate hikes lend support to the USD and warrant caution for bulls.
• Investors now look forward to the key US NFP report for a fresh directional impetus.

The AUD/USD pair gains some positive traction during the Asian session on Friday and for now, seems to have snapped a two-day losing streak to sub-0.6600 levels, or a one-week low touched the previous day. Spot prices currently trade around the 0.6630 area, up just over 0.10% for the day, though any meaningful appreciating move still seems elusive.

A slew of weak economic data from China released over the past week added to worries about slowing growth in the world's second-largest economy. Furthermore, the risk of a further escalation in the US-China trade conflict continues to weigh on investors' sentiment, which is evident from a generally weaker tone around the equity markets and could act as a headwind for the risk-sensitive Aussie. The US Dollar (USD), on the other hand, attracts some buying on the last day of the week and stalls its retracement slide from the highest level since June 12 touched on Thursday, which might further contribute to capping the AUD/USD pair.

Firming expectations that the Federal Reserve (Fed) will hike interest rates again, by 25 basis points (bps) at its upcoming policy meeting on July 25-26 turn out to be a key factor lending some support to the USD. The bets were reaffirmed by the upbeat US ADP report released on Thursday, which showed that private-sector employers added 497K jobs in June, well above the 267K in the previous month and the most optimistic estimates. In a sign of further economic strength, the US ISM Serices PMI increased to 53.9 in June from 50.3 in the previous month, though the Prices Paid sub-component - a gauge of inflation - fell to more than three-year lows.

Nevertheless, the data pointed to a resilient US economy and supports prospects for a further policy tightening by the Fed. This, in turn, remains supportive of elevated US Treasury bond yields and supports prospects for a further near-term appreciating move for the USD. Traders, however, seem reluctant to place aggressive bets and prefer to wait on the sidelines ahead of the release of the closely-watched US monthly employment details, popularly known the NFP report, due later during the early North American session.

Technical levels to watch