AUD/USD retreats further from multi-week high, slides to 0.6860 amid modest USD strength

• AUD/USD turned lower for the second straight day amid the emergence of fresh USD buying.
• Recession fears took its toll on the global risk sentiment and benefitted the safe-haven buck.
• Investors now look forward to the US economic data for short-term trading opportunities.

The AUD/USD pair attracted some sellers for the second straight day on Thursday and retreated further from over a three-week high, around the 0.6930 region touched the previous day. The downfall dragged spot prices to a fresh daily low, around the 0.6860 area during the first half of the European session.

A turnaround in the global risk sentiment - as depicted by the emergence of fresh selling around the equity markets - assisted the safe-haven US dollar to regain positive traction. In fact, the USD Index is now looking to build on the overnight bounce from a two-week low, which, in turn, exerted downward pressure on the AUD/USD pair.

The market sentiment remains fragile amid concerns that rapidly rising borrowing costs and the Russia-Ukraine war would pose challenges to global economic growth. Apart from this, the imposition of strict COVID-19 controls in China fueled recession fears and weighed on investors' sentiment, taking its toll on the risk-sensitive aussie.

Apart from this, elevated US Treasury bond yields, bolstered by hawkish Fed expectations, turned out to be another factor that underpinned the greenback. Despite receding bets for a massive 100 bps rate hike in July, investors seem convinced that the Fed would be forced to deliver a larger increase later this year to curb soaring inflation.

On the other hand, the minutes from the Reserve Bank of Australia policy meeting released on Tuesday indicated that further increases in interest rate will be needed to return inflation to the target over time. This could lend some support to the Australian dollar and limit deeper losses for the AUD/USD pair, warranting caution for bears.

Hence, it would be prudent to wait for strong follow-through selling before confirming that the recent strong rebound from the 0.6680 area, or a two-year low has run out of steam. Moving ahead, the US economic data - the Philly Fed Manufacturing Index and Jobless Claims - might provide some impetus to the AUD/USD pair during the early North American session.

Technical levels to watch