AUD/USD flat-lines above mid-0.6600s amid modest USD bounce, downside remains cushioned

• AUD/USD attracts some intraday selling near the 0.6700 mark, though lacks follow-through.
• A modest USD bounce from over a one-week low is seen acting as a headwind for the major.
• The Fed’s less hawkish outlook keeps the US bond yields depressed and might cap the USD.

The AUD/USD pair struggles to capitalize on its modest intraday uptick and attracts some selling near the 0.6700 round-figure mark on Thursday. Spot prices, however, manage to hold above the daily low through the first half of the European session and currently trade with a mild negative bias, just above mid-0.6600s.

As investors look past the better-than-expected release of the Australian trade balance data, a modest US Dollar (USD) bounces from over a one-week low turns out to be a key factor exerting some downward pressure on the AUD/USD pair. Looming recession risks continue to weigh on investors' sentiment, which is evident from the prevalent cautious mood around the equity markets and lends some support to the safe-haven buck. That said, any meaningful USD recovery seems elusive in the wake of the Federal Reserve's (Fed) less hawkish outlook.

It is worth recalling that the US central bank, as was widely expected, raised interest rates by 25 bps and opened the door for a possible pause in June at the end of a two-day monetary policy meeting on Wednesday. In the post-meeting presser, Powell signalled that the Fed was close to hitting the terminal rate of the current hiking cycle. This, along with concerns over the US debt ceiling and renewed fears of a full-blown banking crisis, keeps the US Treasury bond yields depressed and might hold back the USD bulls from placing aggressive bets.

The Australian Dollar (AUD), on the other hand, might continue to draw support from the Reserve Bank of Australia's (RBA) surprise 25 rate hike earlier this week. Moreover, the Australian central bank indicated that some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe. This, in turn, should act as a tailwind for the AUD/USD pair and limit the downside, making it prudent to wait for strong follow-through selling before positioning for any further depreciating move.

Market participants now look to the release of the usual Weekly Initial Jobless Claims data from the US, due later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. The focus, however, will remain glued to the closely-watched US monthly employment details, popularly known as the NFP report on Friday. This will drive the USD demand and determine the near-term trajectory for the major.

Technical levels to watch