AUD/USD recovers modest intraday losses, flirts with daily high around mid-0.7000s

• AUD/USD reversed an early slide to the 0.7000 mark and climbed back closer to the daily high.
• A goodish recovery in the equity markets undermined the safe-haven USD and extended support.
• Recession fears should keep a lid on any optimistic move in the markets and cap gains for the pair.

The AUD/USD pair recovered its early lost ground and was last seen trading near the higher end of its daily range, just below mid-0.7000s during the early European session.

The pair attracted some dip-buying near the 0.7000 psychological mark on Friday and has now moved well within the striking distance of a two-week high touched the previous day. The global risk sentiment recovered a bit after the People’s Bank of China (PBOC) cut its five-year loan prime rate by 15 basis points to counter an economic slowdown. This, in turn, failed to assist the safe-haven US dollar to capitalize on its modest intraday gains and extended some support to the China-proxy aussie.

The Australian dollar was further underpinned by the Reserve Bank of Australia's hawkish signal that a bigger interest rate hike is still possible in June amid the upside risks to inflation. The market expectations were reinforced by domestic employment data released on Thursday, which showed that the jobless rate fell to the lowest level in almost 50 years. That said, the gloomy global economic outlook should keep a lid on any optimistic move in the markets and the growth-sensitive AUD/USD pair.

The markets remain worried that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. Apart from this, the Russia-Ukraine war and extended COVID-19 lockdowns in China have been fueling recession fears. This makes it prudent to wait for strong follow-through buying before traders start positioning for an extension of the AUD/USD pair's recent bounce from the YTD low, around the 0.6830-0.6825 region touched last week.

In the absence of any major market-moving economic releases from the US, the broader market risk sentiment will continue to play a key role in influencing the USD price dynamics. This, in turn, should provide some impetus to the AUD/USD pair and allow traders to grab short-term opportunities on the last day of the week.

Technical levels to watch