AUD/USD backs away from 0.7000, more gains still on the table

• Australian dollar pulls back versus greenback, still above FOMC levels.
• US dollar hit by lower US yields after economic data.
• AUD/USD retreats from 0.7000, and holds a bullish bias.

The AUD/USD printed a fresh daily low during the American session at 0.6954. It is attempting to recover momentum supported by an improvement in market sentiment and on the back of a weaker US dollar.

Between a weak dollar and… risk aversion?

Data released on Thursday showed the US economy contracted during the second quarter at an annualized rate of 0.9%, against expectations of a 0.5% expansion. It is the quarterly contraction in a row, so it points to the US economy falling into a technical recession.

“Insisting upon the precise definition of recession will be an even more fraught task in light of the unequivocal deterioration in economic activity reflected in today's 0.9% contraction in Q2 real GDP. Yet real consumer spending continued to forge ahead and the job market still has legs. It is too early call the end of this expansion, but the hour is fast approaching”, said analysts at Wells Fargo. The numbers triggered a rally in Treasuries and weighed on the US dollar. The US 10-year yield is at 2.66%, the lowest level since April.

After a negative opening, equity prices are up again in Wall Street, adding to yesterday’s strong gains. Initially, risk aversion gave some support to the dollar but later faded.

The AUD/USD still shows a bullish bias. A test of 0.7000 seems likely over the next session if it remains above 0.6950. Below the next support stands at 0.6910. A break lower would weaken the outlook suggesting a deeper correction ahead.

Technical levels