AUD/USD drops to multi-day low, closer to mid-0.7000s amid reviving USD demand/risk-off

• AUD/USD faded the post-NFP spike and dropped to a fresh multi-day low.
• Rising US bond yields acted as a tailwind for the USD and exerted pressure.
• Sustained break below the monthly low will set the stage for further losses.

The AUD/USD pair reversed an early North American session spike to the 0.7135 region and dropped to a fresh multi-day low in the last hour. The pair was last seen hovering around the 0.7065 region, down over 0.60% for the day.

The US dollar witnessed some selling in reaction to the mixed US jobs report and moved further away from a two-decade high touched earlier this Friday. The headline NFP print showed that the US economy added 428K new jobs in April as compared to the 391K anticipated. This, however, was offset by a slight disappointment from Average Hourly Earnings and the unemployment rate, which, in turn, weighed on the buck.

That said, expectations that the Fed would need to take more drastic action to bring inflation under control helped limit the USD slide. In fact, the markets are still pricing in a further 200 bps rate hike for the rest of 2022, which was evident from a fresh leg up in the US Treasury bond yields. This, along with a weaker risk tone, drove haven flows towards the buck at the expense of the perceived riskier aussie.

With the latest leg down, the AUD/USD pair has now reversed its weekly gains and has now moved well within the striking distance of the monthly low, around the 0.7030 region touched on Monday. Some follow-through selling would be seen as a fresh trigger for bearish traders and drag spot prices to the 0.7000 psychological mark. The downward trajectory could further get extended towards the YTD low, around the 0.6965 region.

Technical levels to watch