AUD/USD sticks to intraday gains near 0.7000 mark, lacks follow-through amid risk-off

• AUD/USD regained positive traction on Thursday and reversed a major part of the overnight fall.
• Retreating US bond yields prompted fresh selling around the USD and extended support to the pair.
• The risk-off mood kept a lid on any further gains for the perceived riskier aussie, at least for now.

The AUD/USD pair retreated a few pips from the daily high and was seen trading around the 0.7000 psychological mark during the first half of the European session, up nearly 0.60% for the day.

A combination of supporting factors assisted the AUD/USD pair to attract fresh buying near the 0.6950 area on Thursday and reverse a major part of the overnight retracement slide from a one-week high. The Australian dollar drew some support from domestic employment data, which showed that the jobless rate fell to the lowest level in almost 50 years. On the other hand, modest pullback in the US Treasury bond yields kept the US dollar bulls on the defensive and extended additional support to the major.

The AUD/USD pair, however, struggled to capitalize on the move and witnessed some selling near the 0.7025 region amid the prevalent risk-off environment. Investors seem worried that a more aggressive move by major central banks to constrain inflation could hit global economic growth. Adding to this, extended COVID-19 lockdowns in China and the Russia-Ukraine war have been fueling recession fears, which, in turn, took its toll on the global risk sentiment and capped the perceived riskier aussie.

Meanwhile, expectations that the Fed would need to take more drastic action to bring inflation under control act as a tailwind for the US bond yields and the buck. The bets were reaffirmed by Fed Chair Jerome Powell's hawkish comments on Tuesday, saying that he will back interest rate increases until prices start falling back toward a healthy level. Hence, it will be prudent to wait for strong follow-through selling before positioning for an extension of the AUD/USD pair's recovery from the YTD low.

Market participants now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Existing Home Sales data. Apart from this, the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities.

Technical levels to watch