AUD/USD struggles around 0.6900 as recession fears return

• AUD/USD tries to reverse a pullback from a three-week high as market sentiment dwindles on recession fears.
• Looming gas problems for Eurozone, firmer inflation data from UK, Canada challenge the previous risk-on mood.
• Equities pared gains as major players paused/cut down on jobs, led by Google, hawkish RBA Governor Lowe defended bulls earlier.
• Australia’s NAB Business Confidence will be important, ECB is the key.

AUD/USD licks its wounds around 0.6900, after posting the first daily loss in a week as it reversed from the monthly top. The Aussie pair’s pullback could be linked to the market’s fresh fears of recession and inflation. However, hawkish concerns over the Reserve Bank of Australia’s (RBA) next move, as well as hopes of firmer sentiment data at home, appear to keep buyers hopeful during Thursday’s initial Asian session.

Chatters surrounding a permanent halt in Russia’s gas supplies to Europe appear to be the key catalyst that renewed recession fears the previous day. On the same line were the record inflation from the UK, a firmer CPI from Canada and Italy’s political crisis. Additionally, covid fears from China and Wall Street majors’ alarm on employment could also roil the previous optimism. However, comments from RBA Governor Philip Lowe suggested further rate hikes ahead, which in turn kept AUD/USD buyers hopeful.

European Commission President Ursula von der Leyen said on Wednesday that it was a likely scenario that there could be a full cut-off of Russian gas, as reported by Reuters. On the other hand, Russian President Vladimir Putin mentioned that they are yet to see in which condition the equipment for Nord Stream 1 will be after returning from maintenance, per Reuters. It should be noted that the fears over gas might have pushed the International Monetary Fund (IMF) to cut its growth forecasts for Germany. That said, the IMF lowered its growth forecasts for Germany to 1.2% for 2002 and to 0.8% for 2023. In its previous forecast, the IMF was expecting the German economy to grow by 2% in both years.

Elsewhere, Italian Prime Minister Mario Draghi won a confidence motion, but as three major cotillion parties boycotted the vote and hence Mr. Draghi may again resign and trigger early elections in the nation.

It should be noted that the UK reported an all-time high Consumer Price Index (CPI) of 9.4% YoY for June while Canada’s CPI also rose 8.1% during the stated month. The record slump in the Eurozone Consumer Confidence could also be linked to the market’s sour sentiment and weighed on the AUD/USD prices.

Furthermore, the fresh US-China tussles over Taiwan and China’s highest covid count in two months add to the risk-off mood. Additionally, Google was the first to report a two-week halt in recruitment while Ford announced plans to cut around 8,000 jobs.

On the contrary, RBA's Governor Lowe said that the board anticipates that additional hikes will be necessary in the upcoming months, per Reuters. With this, 50 bps rate hike from the RBA during its next meeting on August 02 gains more acceptance.

Amid these plays, Wall Street managed to close on the positive side despite the latest pullback while the US 10-year Treasury yields paused a two-day uptrend around 3.03%.

Moving on, National Australia Bank’s (NAB) quarterly prints of Business Confidence, expected 16 versus 14 prior, could entertain AUD/USD traders. However, risk catalysts and monetary policy meeting of the European Central Bank (ECB) will be more important for clear directions.

Technical analysis

A successful break of the 21-DMA and previous resistance line from mid-June, respectively around 0.6845 and 0.6820, keeps the AUD/USD pair on the way to the 0.7000 threshold.