AUD/USD struggles to gain any meaningful traction, remains below 0.6800 amid stronger USD

• AUD/USD gained some traction on Thursday in reaction to a stellar Australian jobs report.
• Aggressive Fed rate hike bets lifted the USD to a 20-year high and capped gains for the pair.
• Recession fears continued weighing on investors’ sentiment and the risk-sensitive aussie.

The AUD/USD pair struggled to capitalize on its modest bounce on Wednesday and seesawed between tepid gains/minor losses through the early European session. The pair was last seen trading in neutral territory, around the 0.6765-0.6770 region, and remains at the mercy of the US dollar price dynamics.

The Australian dollar got a minor lift following the release of the stellar domestic jobs report, which showed that the unemployment rate dropped to the lowest level in almost 50 years. The data bolstered the case for a supersized interest rate hike by the Reserve Bank of Australia (RBA) at its next policy meeting in August. The intraday uptick, however, lacked bullish conviction amid the emergence of fresh US dollar buying.

In fact, the USD Index climbed to a fresh 20-year high and continued drawing support from the prospects for a more aggressive policy tightening by the Fed. The red-hot US consumer inflation figures released on Wednesday reinforced bets for another large interest rate hike by the Federal Reserve. Adding to this, Atlanta Fed President Raphael Bostic said that everything is in play to combat persistently rising inflation pressures.

The markets were quick to react and started pricing in the possibility of a historic 100 bps Fed rate hike move later this month. This, in turn, kept the US Treasury bond yields elevated and continued underpinning the buck. This, along with growing fears about a possible global recession and the prevalent risk-off environment, benefitted the safe-haven greenback and acted as a headwind for the risk-sensitive aussie.

Even from a technical perspective, the AUD/USD pair, so far, has struggled to capitalize on its bounce from the vicinity of the 0.6700 mark or the lowest level since June 2020. Furthermore, the recent leg down has been along a downward sloping channel, which points to a well-established short-term bearish trend. This makes it prudent to wait for strong follow-through buying before positioning for any meaningful recovery move.

Technical levels to watch